How much does a mortgage cost? If you’re hoping to make the leap from renting to owning in the near future, that’s a very relevant question. It’s also a surprisingly difficult one to answer with any specificity. While Dave Ramsey reports that the median monthly mortgage payment in the U.S. is a little more than $1,500, a lot of different factors play a role in determining the size of your mortgage payment. Although being aware of the big picture is useful, understanding what these factors are and their likely impact may help you do a better job of estimating your future mortgage payment accurately.
How Much Does a Mortgage Cost?
When trying to estimate the cost of a mortgage, you’ll need to account for the amount that you borrow, which you’ll have to repay. You’ll also need to consider the interest rate, which is the primary way that you’ll pay your lender for the privilege of borrowing money. Your credit score has a major impact on this, which is why every prospective homebuyer should be familiar with their credit score. There’s also the matter of closing costs, which are the fees that you’ll need to pay to various parties for the assortment of services that are needed to complete a real estate transaction.
As the Consumer Financial Protection Bureau explains, the amount that you borrow when you take out a loan is referred to as the principal. It’s not technically an expense, but it does have to be repaid. Because interest is calculated as a percentage of the amount that you borrow, the more money that you borrow, the more your loan will cost you. However, loans are complex financial instruments, and there are steps that you can take to switch things up. That’s why it’s important to work with an experienced, reputable loan officer who understands your circumstances and can guide you toward the best loan product for your situation.
The Interest Rate
As Experian explains, the amount that you’ll pay in interest can vary widely. It depends on factors like your interest rate, your loan term, whether you opted for a fixed- or variable-rate loan, and whether you refinanced. Generally speaking, mortgages are amortized installment loans. That means that your monthly payment gets split between the principal and interest according to a pre-set amortization schedule. This arrangement typically favors the interest pot first; it isn’t an equal split between interest and principal. As a result, borrowers who pay off their loans very early will likely pay less interest. In contrast, borrowers who pay off their loans only a little early may find that they’ve already paid most of the interest that they owe.
The Credit Score
According to NerdWallet, a difference of 100 points on your credit score could be the difference between thousands of dollars in savings or thousands of dollars in additional costs when you secure a mortgage. Why are credit scores so powerful? Lenders consider credit scores and credit histories carefully before offering borrowers interest rates. You’ll need a high credit score to win an offer for the best interest rates, so if your credit score isn’t as high as you’d like it to be, it may be worthwhile to spend a little time working to boost it before approaching lenders.
The Closing Costs
Closing costs are fees associated with the mortgage application process and closing. Some are directly related to the mortgage, including the loan application fee or underwriting fee. Others are related to the home purchase. These include the realtors’ fees, inspectors’ fees, and charges for taxes or insurance. Closing costs are traditionally split between the buyer and seller. As The Mortgage Reports notes, buyers can expect to pay an amount somewhere between two and five percent of the property’s purchase price. This money can be paid at the closing table. Alternately, you may be able to roll it into the loan.
How much does a mortgage cost? If you’d like to explore the possibilities, reach out to the loan experts at PrimeLending Twin Cities. We offer a wide range of loan products and the kind of cheerful, user-friendly personal service that helps you to feel confident about your choices. Contact us today to learn more.