Your monthly mortgage payment will be made up of four parts: principal, interest, taxes and insurance (PITI). For purposes of our calculations, we’ll be focusing on principal and interest, but keep this in mind: The total amount you’ll pay in principal and interest each month can vary significantly depending on your interest rate and the length of your loan term. It’s time now to delve into how both of these factors, along with other factors, impact a $400,000 mortgage payment. Simply put, the shorter your mortgage term length, the higher your mortgage payment will be each month. That’s because you’ll have less time to pay off the total principal balance and you’ll have to do so in significantly fewer payments. For example, on a $400K mortgage with a 7% fixed rate, the monthly payment on a 15-year loan is $3,595. The payment on a 30-year loan, by comparison, is $2,661. Just keep in mind that neither amount factors in the cost of insurance or property taxes, which will both be included in your monthly payment.How Term Length Impacts A $400K Mortgage
Consider, too, that although you’ll pay more each month with a 15-year mortgage than you’d pay monthly with a 30-year mortgage, you’re likely to have a lower interest rate on the 15-year plan since rates tend to be lower on shorter-term mortgages. For example, with all other factors being equal, the interest rate on a 30-year $400,000 loan might be 7.9%, while the rate on a 15-year loan for the same amount might be 6.9%.
How Interest Rate Impacts A $400K Mortgage
As already noted, another factor that will impact your monthly mortgage payment on a $400K loan is the interest rate you qualify for. The higher the interest rate, the higher your monthly payment. Sticking with the example in the section above, a 30-year $400K mortgage at a 7% interest rate would have a monthly payment of $2,661. Meanwhile, the same 30-year $400K mortgage at a 7.5% interest rate would have a monthly payment of $2,797, taxes and insurance not included.
Adjustable-Rate Mortgages
While the aforementioned examples use a fixed-rate mortgage for simplicity, it’s possible that you could choose an adjustable-rate mortgage. With this option, home buyers have an introductory rate for an agreed-upon time period after which their interest rate can go up, down or both, depending on how the market fluctuates over time.
What Determines Your Mortgage Rate?
Your interest rate is determined not only by your term length, but by other factors that include market interest rates, your credit score, your loan-to-value ratio, your down payment and the loan program of your choosing. Your interest rate will also be affected by your individual lender, so be sure to compare rate quotes from different lenders to see who’ll provide you with your best option.
Additional Costs To Consider
As mentioned, in addition to the principal and interest associated with your mortgage, you’ll have to factor some other costs into your monthly mortgage payment. Specifically, many lenders require that you pay into an escrow account every month to cover the cost of homeowners insurance and property taxes. And, if you’re taking out a conventional loan but putting down less than 20%, you’ll need to pay private mortgage insurance – leading to an even higher monthly payment.
If you live in a home connected to a homeowners association (HOA), you’ll also have to pay monthly or yearly HOA dues for various amenities that the HOA provides to residents of the neighborhood. Like interest rate, loan term, insurance costs and property taxes, HOA dues can affect the affordability of a $400K mortgage.
