Money Management

The cost of your mortgage payment depends on the interest rate and other factors. See how much your payment would go up if you borrowed more. 

Your monthly mortgage payment is determined by two factors. The determining factors include your interest rate and the amount of money you borrow to buy a house.

When you are trying to decide how much to spend on a home, you’ll want to keep in mind that taking out a larger mortgage loan can mean much higher monthly payments. Not only that, but buying a costlier house could potentially also increase your property taxes and your insurance costs as well.

Here’s what you need to know about how adding an extra $100,000 onto your mortgage loan balance could affect your housing payments.

What an extra $100,000 does to your monthly mortgage costs

If you are thinking about increasing your housing budget, the first thing to know is that the impact of adding an extra $100,000 to your loan balance is going to vary depending on your mortgage interest rate as well as depending on the kind of mortgage loan you choose.

For example, here are a few different scenarios that show how an additional $100,000 borrowed would affect your monthly payment amount:

If you take out a 30-year fixed-rate loan with an interest rate of 7.50%, each $100,000 you add to your mortgage payment would raise your payment by $699.If you take out a 30-year fixed-rate loan with an interest rate of 5.00%, each $100,000 would result in a $537 bump up in your monthly payment amount.If you take out a 15-year fixed-rate loan with an interest rate of 6.50%, you would add $871 to your monthly mortgage payment if you increase your loan balance by $100,000.

The higher your interest rate, the bigger the impact of the extra $100,000, because you will be paying more interest on a larger sum when you increase your loan balance. If you shorten your payment term, that also means adding an extra $100,000 is going to have a bigger effect since you have much less time to take care of paying off the extra money you’re borrowing.

Regardless, though, taking on $100,000 in extra mortgage debt is going to raise your principal and interest payments by hundreds of dollars per month. You need to think seriously about whether these additional payments are affordable. If your housing costs would end up exceeding around 25% of your income once you add the extra $100,000 in, then you should think twice about bumping up your budget.

Don’t forget other costs of a more expensive house

The figures above show what would happen to the principal and interest portion of your mortgage payment if you added $100,000 extra onto your loan. But if you were borrowing more to purchase a costlier house, you could also get stuck with higher property taxes and higher homeowners insurance costs.

That’s because your home’s appraised value determines your taxes, and more expensive houses generally cost more to insure because the insurer would have to pay out a higher amount if the home was destroyed.

Many mortgage lenders also require you to include property taxes and insurance in your monthly mortgage payment. This money is then put into an escrow account until it’s needed to pay the bills. If you’ve purchased a costlier home, both of these costs would increase so your monthly mortgage payment would go up even more to reflect that.

Before you increase your housing budget — whether by $100,000 or some other amount — be sure to do the math on both the principal and interest increase as well as on added taxes and insurance. You might just find that the increase isn’t something your budget can accommodate.

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Funding your IRA to the max for many decades could leave you extremely wealthy. Read on to learn more. 

It can be hard to motivate yourself to save for retirement at a young age when you have other financial priorities and goals. You may, for example, be eager to buy a home or spend some of your money on travel before you’re married with kids.

But the reality is that the sooner you start saving for retirement, the more wealth you stand to accumulate. And if you’re able to max out your IRA over many years, you might end up amazed at the amount of money you’re able to amass.

It pays to push yourself to max out

Maxing out a 401(k) plan is a really tough thing to do. That’s because 401(k)s currently max out at $22,500 a year for savers under the age of 50, and $30,000 a year for savers 50 and over.

IRAs, by contrast, come with lower contribution limits, so maxing out may be more attainable, even on an average income. This year, IRAs max out at $6,500 a year for savers under 50 and $7,500 for those aged 50 and over.

Now if money is tight and you can’t afford to max out your IRA, then your best bet is to save as much as you can. And to be clear, it’s okay if you can’t yet max out your IRA, or if you can’t manage to do so every year. But if you are able to hit that max, it really pays to do so.

Let’s assume that this year’s IRA contribution limits hold steady for the next four decades, even though annual limits are very likely to rise during that time. Let’s also assume that you’re able to max out your IRA contributions each year between the ages of 25 and 65. That means you’d be putting in $6,500 a year for 25 years, and then $7,500 a year for 15 years.

Finally, let’s assume your IRA is heavily invested in stocks. The stock market has, over the past 50 years, delivered an average annual return of 10% before inflation, as measured by the performance of the S&P 500 index. So we’ll apply that 10% rate of return to your IRA as well.

When we crunch all of the numbers, the amount of money you’re looking at retiring with by maxing out an IRA for 40 years is an astounding $2.9 million. Now that’s a sum of money that could make your senior years quite enjoyable.

You can reap a really big reward

Maxing out an IRA year after year will likely require some sacrifice. You may have to spend less money on other things you enjoy — for example, taking lower-cost vacations instead of luxury ones. You may also have to commit to driving a less expensive car or buying a home that’s on the smaller side.

But if you’re willing to commit to maxing out your IRA throughout your career, you stand to be rewarded big time once retirement rolls around. And that’s reason enough to try to push yourself to save as much as you can, as soon as you can.

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Home repairs can arise at any time. Read on to see why budgeting for them is so important. 

When my husband and I bought our new construction home, we assumed we wouldn’t have to face costly repairs for several years. After all, the place was brand spanking new, and many of our appliances had warranties that covered us for a while. Plus, our home had come with a one-year builder warranty, so we knew that if quality issues with the construction itself arose, we’d be protected for 12 months.

But lo and behold, somewhere between our first and second year of living in our home, repairs started to come into play. And that caught us off guard, namely because we hadn’t been budgeting for home repairs that soon.

Thankfully, we had a pretty strong emergency fund, so we were able to raid our savings account to cover the cost of getting our home fixed. But if you’re buying a brand-new home, it’s important to work repairs into your budget so you don’t put yourself at risk of debt when things go wrong.

Repairs can strike at any time

When you buy a newly built home, you’d expect things to just plain work for the first few years. But that’s not always the case. And that’s why it’s so important to put a line item in your budget for home repairs. If you don’t, and you don’t have emergency savings, you may be forced to charge those repairs on a credit card. The result? Costly debt.

Meanwhile, data from All Star Home found that almost 25% of homeowners can’t cover a $1,000 home repair emergency. So if that’s the boat you’re in, it’s especially important to work repairs into your budget.

That said, you’ll need to be careful with how you manage that money during months when repairs don’t pop up. Let’s say you allocate $200 a month to home repairs at the start of a given year, but no issues arise between January and June. What you’d want to do is bank the $1,200 you didn’t spend and perhaps stick it into savings so that if, come July, you’re faced with a $1,000 air conditioner repair bill, you’ll have the money nice and accessible, and you won’t have to scramble to get it.

It’s sometimes better to assume the worst

In many cases, buying a brand-new home will mean not having to deal with repairs — at least major ones — for many years. But there’s no guarantee that will happen, so your best bet is to pad your budget in case things break. That may not be an easy thing to do when you’re adjusting to making a monthly mortgage payment, but it’s crucial nonetheless.

At the same time, it’s important to be vigilant about home maintenance, because that could help you avoid certain repairs — or at least get ahead of them so they don’t become even more expensive. Staining and sealing your wooden deck every year, for example, could prevent it from rotting and you needing to replace it. Cleaning out your gutters could prevent water from seeping into your home.

In some cases, home repairs are truly unavoidable. But you can do your part to lower the chances of them happening to you right away after buying a newly built home.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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