An October 2018 housing report showed how the average or typical mortgage payment has increased in major cities across America. In California, rising home values have resulted in a higher average monthly mortgage payment in most cities. The biggest increase was seen in the San Jose metro area, where the typical monthly payment rose by a whopping 32.9% in a year’s time.
Fortunately, there are some things borrowers can do to reduce their monthly mortgage payments as much as possible. And we’ve covered some of those strategies below.
How Mortgage Payments Have Changed in California Cities
The table below was adapted from a press release issued by Zillow on October 16, 2018. To simplify the table, we removed the metro areas from other states and kept only those within California. This table shows how the median home price changed from August 2017 to August 2018. In the far-right column, it shows how the typical monthly mortgage payment changed during that same 12-month period.
|Metro Area||Median Home Value, Aug. 2018||Annual Change, Home Value||Annual Change, Monthly Mortgage Payment|
|United States||$ 216,700||6.5%||15.4%|
|Los Angeles-Long Beach-Anaheim, CA||$ 641,800||5.2%||13.9%|
|San Francisco-Oakland-Hayward, CA||$ 947,700||9.0%||18.0%|
|Riverside-San Bernardino-Ontario, CA||$ 356,600||5.5%||14.3%|
|San Diego-Carlsbad, CA||$ 580,500||4.9%||13.6%|
|Sacramento-Roseville-Arden-Arcade, CA||$ 397,100||4.3%||13.0%|
|San Jose-Sunnyvale-Santa Clara, CA||$ 1,281,100||22.7%||32.9%|
As you can see, the average or typical mortgage payment in these California metro areas rose by double-digit percentages during this 12-month period. And that’s not surprising, when you consider that both home values and mortgage rates rose steadily during that same timeframe.
In August of last year, the average rate for a 30-year fixed mortgage loan was hovering in the 3.8% – 3.9% range. By August of 2018, that average had risen to the 4.5% range. Home prices in all of the California metros shown above have also risen steadily in recent years.
Given those trends, it only makes sense to see higher average mortgage payments in San Diego, San Francisco, Los Angeles, and other California metros. It’s a sign of the times.
How to Reduce Your Monthly Housing Costs
As we’ve seen, the typical monthly payment among homeowners in California has risen in recent years. This is the result of a rise in home prices and interest rates. Fortunately, there are some things borrowers can do when taking out a mortgage loan to minimize their monthly payments.
1. Consider paying points: Home buyers who can afford to pay a little more money up front might benefit from paying discount points at closing, in exchange for a lower rate. (One point equals one percent of the loan amount.) This in turn could lower the borrower’s monthly payments, compared to the same loan without any points paid.
2. Stretch out the term: A 30-year mortgage loan will have smaller monthly payments than a 15-year loan for the same amount. When you spread the payments out over a longer period of time, you reduce their size. This is partly why the 30-year fixed mortgage is the most popular financing option among home buyers and homeowners in California.
3. Consider using an ARM: Adjustable-rate mortgage loans (ARMs) typically start off with a lower interest rate than a longer-term fixed loan. Check out Freddie Mac’s weekly survey of the mortgage industry, and you’ll see this difference. Some borrowers choose to use ARM loans in order to reduce the size of their monthly payments, during the first few years of the repayment term.
4. Put more money down: Making a larger down payment on a home purchase can also reduce the size of the monthly payments, since you’re borrowing less. Of course, not everyone can afford to put a big chunk of money down — and it’s not always necessary. But for those who can afford a larger upfront investment, it’s a good strategy for minimizing the monthly mortgage payments.