How million-dollar mortgages work | With a conventional loan | Piggyback loan | Jumbo loan | Which mortgage should I get?
For a home buyer living in a baseline area, the monthly mortgage payment on a $1 million home may range from $4,354 to $5,329. These numbers are based on:
- A 30-year conventional mortgage with a balance of $726,200, the maximum amount allowed under Fannie Mae and Freddie Mac guidelines
- A down payment covering the remaining balance of $274,800
- A fixed interest rate of 6% to 8%
- Principal and interest payments only
In high-cost areas, such as parts of California or New York City, the loan limit rises to $1,089,000. In this case, your monthly payment would range from $5,696 to $6,971. You might be able to buy a $1 million home with just 5% down, or $50,000.
| Criteria | Baseline area | High-cost area |
|---|---|---|
| Loan limit | $726,200 | Up to $1,089,000 million |
| Down payment | $274,800 | $50,000 (5%) |
| Mortgage balance | $726,200 | $950,000 |
| Monthly payment | $4,354–5,329 | $5,696–6,971 |
However, these figures do not include private mortgage insurance, which is required when you put less than 20% down, plus other costs, including property taxes and insurance.
Getting a mortgage on a $1 million home
Mortgages on $1 million homes work differently than mortgages on lower-priced houses because of conforming loan limits, the maximum amount allowed under Fannie Mae and Freddie Mac guidelines.[Conforming Loan Limit Values, Federal Housing Finance Agency]
For "conforming mortgages" in baseline areas — i.e., within the conforming amount of $726,200 — the process is straightforward: buyers typically make a down payment of up to 20% of the home's purchase price. Whatever amount remains is the mortgage balance.
The process flips for mortgages above $726,200. The loan limit determines the mortgage amount, and the remainder is the buyer's down payment.
Example: $500,000 home vs. $1 million home
| Home price | Down payment | Mortgage amount |
|---|---|---|
| $500,000 | $100,000 | $400,000 (remaining balance) |
| $1,000,000 | $274,800 (remaining balance) | $726,200 |
| $1,500,000 | $774,800 (remaining balance) | $726,200 |
Because of the hefty down payment requirements, lenders offer alternative loans that can be more affordable up front.
A piggyback loan, also known as a combination mortgage, is a multi-part loan to cover separate parts of the home purchase. For example, with the most common type of piggyback loan, an 80/10/10 loan:
- The primary mortgage covers 80% of the home's purchase price
- A second mortgage or home equity line of credit covers 10%
- Your down payment covers the remaining 10%
Jumbo loans exceed conventional mortgage limits. They're hard for most borrowers to qualify for because jumbo loans tend to have stricter credit score and income requirements than traditional mortgages.
So which mortgage should I get?
| Conforming conventional loan | Piggyback loan (80/10/10) |
|---|---|
|
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👍 Right for buyers who:
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👍 Right for buyers who:
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Other factors impacting $1 million house approval
Monthly payments on a $1 million house with a conventional loan
Here's a range of monthly payment estimates (principal, plus interest) for a conventional loan, based on interest rates.
| 30-year term | 15-year term | ||
|---|---|---|---|
| Interest rate | Monthly payment | Interest rate | Monthly payment |
| 5.0% | $3,898 | 5.0% | $5,743 |
| 5.25% | $4,010 | 5.25% | $5,838 |
| 5.50% | $4,123 | 5.50% | $5,934 |
| 5.75% | $4,238 | 5.75% | $6,030 |
| 6.0% | $4,354 | 6.0% | $6,128 |
| 6.25% | $4,471 | 6.25% | $6,227 |
| 6.50% | $4,590 | 6.50% | $6,326 |
| 6.75% | $4,710 | 6.75% | $6,426 |
| 7.0% | $4,831 | 7.0% | $6,527 |
| 7.25% | $4,954 | 7.25% | $6,629 |
| 7.5% | $5,078 | 7.5% | $6,732 |
| 7.75% | $5,203 | 7.75% | $6,836 |
| 8.0% | $5,329 | 8.0% | $6,940 |
** ~$4,034 principal, plus interest.
Based on $726,200 mortgage.
Total interest costs: $726,200 mortgage at 7%
| Mortgage length | Monthly payment | Total interest paid |
|---|---|---|
| 15 years | $6,518 | $448,094 |
| 30 years | $4,825 | $1.01 million |
Deciding which loan terms work best for you comes down to weighing total cost versus. flexibility.
For borrowers who want to minimize costs and who can handle higher monthly payments, a 15-year term might be the ideal choice.
For those valuing financial flexibility, the 30-year term is a sound choice. The monthly payments are more manageable. And you can refinance the loan in the future if interest rates dip.
Consult with a mortgage professional for more specific advice tailored to your circumstances.
Monthly payments on a $1 million house with a piggyback loan
A piggyback loan can help you keep a high mortgage conforming and potentially more affordable.
With an 80/10/10 underwriting approach, you can mortgage 80% of the property's price, finance 10% with a second mortgage or HELOC, and make a 10% down payment.
👍 Piggyback benefits:
- No private mortgage insurance (PMI)
- Easier qualification
👎 Piggyback downsides:
- Higher interest rate on the second loan
- Variable-rate home equity line of credit (HELOC)
If your piggyback loan is a HELOC, the interest rate and your payments will fluctuate annually based on the market.
"The interest rate for a second mortgage [HELOC] is usually around the prime rate, between 8.5% to 10.5%, with interest-only payments for 3 to 10 years."
— Joe Moore, division manager, Secured Choice Lending
80/10/10 loan example ($1 million house)
A $1 million property financed with a $800,000 first mortgage and a $100,000 second "piggyback" mortgage HELOC will have a total monthly payment of $6,072.
However, you may be paying interest only on the second mortgage for the first three years. Then your payments include principal, too, and get higher.
| Financing | Loan amount | Interest rate | Monthly payment | Terms |
|---|---|---|---|---|
| 1st loan (80%) | $800,000 | 7% | $5,322 | 30 years, principal + interest, fixed rate |
| 2nd loan (10%) | $100,000 | 9% | $750 | 3 years, interest only, rate varies annually |
| Down payment (10%) | $100,000 | N/A | N/A | One-time payment |
Jumbo loans
A jumbo loan is a home loan used for higher-priced property exceeding federal loan limits ($726,200 for one-unit property, and $1,089,300 in high-cost areas in 2023.)
According to industry expert Joe Moore, jumbo loans are a less popular choice among borrowers, accounting for only 2-3% of all mortgage loans. The low popularity is due to its stringent requirements.
For example, jumbo loan borrowers typically have to maintain cash reserves of 6 to 20 months of their mortgage payments, according to Moore. That means lenders need to see you have $36,000 to $120,000 in your bank account to afford a $6,000 monthly payment.
Applicants still need to make a big down payment, often 10% or more, as well as have a high credit score (680 minimum).
Payments on million-dollar mortgages vary depending on:
- The type of loan
- The loan's interest rate
- Repayment term
- How much you put down
Type of loan: Conforming vs. nonconforming
Conforming loans are mortgages that meet loan limits set by federally backed mortgage companies Fannie Mae and Freddie Mac. The baseline loan limit is $726,200, though it can go over $1 million in higher-cost areas like California. Conforming loans include conventional, FHA, or VA loans.
One way you can finance the purchase of a $1 million house is to get a conforming loan with a piggyback loan — a second mortgage to cover part of the down payment.
Nonconforming loans (or jumbo loans) exceed the conforming loan limits. Lenders consider these loans to be extra risky and rarely approve them.
Interest rate
With big loans, even a small difference in the interest rate can significantly affect the amount of interest paid over time.
You might be able to get a lower rate for jumbo loans, but you’ll also need access to a lot of cash.
Repayment term: 30 vs. 15 years
If you have a longer repayment term of 30 years, you’ll have a lower monthly payment. But because the loan will be accruing interest for a longer period of time, you’ll pay more than you would with a shorter repayment term.
A shorter-term loan of 15 years will save you more on interest in the long run, but you'll also have a significantly higher monthly payment. Lenders are less likely to approve a short-term loan if you have a high level of debt.
Down payment
The more money you can put down on a house payment, the smaller the loan and the lower your monthly payments.
Note: You'll also need to cover various buyer closing costs, such as mortgage origination fees, home appraisal, and home inspections.
This article was reviewed by Joe Moore, division manager at Secured Choice Lending.
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