Applying for a mortgage of $950,000 is a big financial commitment, and knowing what you would have to pay every month will help you plan accordingly. The price would depend on the interest rate, the term of the loan, and your finances. This guide covers how monthly payments, total interest, and amortization form the overall cost of your mortgage.
Monthly payments and interest costs
Monthly payments required for a $950,000 mortgage: the mortgage term; the monthly payments on the specific amounts vary by loan term and interest rate. For example, pay about $6,320 per month for a 30-year, fixed-rate mortgage at an interest of 7.00%. Reduce that number to about $8,539, increase that number into a 15-year payment, but lower the overall interest paid on the loan.
At 6.50% interest, the 30-year loan’s payment is around $6,005, while the same is about $8,276 per month for a 15-year loan. Rising interest rates will make a higher monthly payment. For example, a rate of 8.00% will put that cost close to $6,971 for the 30-year loan and over $9,000 for the 15-year loan.
Your interest rates will affect overall costs a lot. For example, at 7.00%, you pay about $1.33 million over 30 years, which is close to 140% of the original loan. Whereas for a 15-year loan, it would amount to $586,996 with a couple of costs significantly lower than it.
Understanding amortization and total costs
Hardship financing mainly defines repayment patterns at the start and the end of repayment. Thus, for all practical purposes, in the first months of the loan, your monthly payment goes mainly to paying interest. As the principal balance declines, each subsequent payment tends to be consumed in large part by principal repayment.
In the first year of a 30-year, 7.00% mortgage, only a tiny fragment of your monthly payment pays down the principal; the bigger piece goes to interest. In the end, at the end of your mortgage term, most of your payment will apply directly to the balance. This transition is so gradual that one would think the total cost of a mortgage is high when it is stretched over decades.
The other way to do it would be to decide on a 15-year term; with it, one would make the mortgage payment more rapidly and thus pay the loan sooner, and at the same time, save some money on the interest. This would mean a higher monthly payment, but doing some tight budgeting may pull it off. Thus, say you do save some dollars, but those dollars perhaps stretch your budget much further than a 30-year loan does because it costs much less in interest than a 15-year loan.
Key takeaways
Budgeting for a mortgage of $950,000 does entail much more than just calculating a regular monthly payment. You should think very carefully long-term about how interest rates and the length of the loan will affect the cumulative cost of the loan over time. A shorter loan will usually save interest but require a higher monthly payment; conversely, a longer loan gives much less stringent monthly payments but has a higher overall interest payment. Think through your financial goals very carefully, and consult with a mortgage advisor on the best option for you.
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