The ideal mortgage amount is $1,000,000 if you can afford it. Back in 2002, a $1 million mortgage cost around $50,000 to $65,000 a year in interest expense given mortgage rates were 5%-6.5% for a 5/1 ARM or a 30-year fixed. Multiply the annual interest expense by three, and you get $150,000-$195,000, the minimum annual income recommended to take out such a loan.
In 2017, a $1 million mortgage costs around $30,000 to $40,00 a year in interest expense given mortgage rates are now 3% for a 5/1 ARM or 4% for a 30-year fixed. Multiply the annual interest expense by three again and you get $90,000 to $120,000, a far cry from the $150,000-$195,000 you originally needed to make! You just need to come up with the 20% downpayment, which is one of the main struggles for first time home buyers today. Note, banks still only lend out 3-4X your income despite a drop in rates.
It is aggressive to think that someone who only makes $90,000 – $120,000 a year in gross salary can afford a $1 million mortgage, but it’s also absurd that one can borrow $1 million dollars nowadays for only 3%. I’m not recommending everyone with impeccable credit scores, great financial habits, and steady savings rates all get $1 million mortgages. I’m just saying that it’s now possible for someone making $90,000 – $120,00 a year to service $1 million worth of debt at today’s rate if the bank approves.