How much interest will I pay on a $ 200,000 mortgage?
Mortgage lenders have to make money by giving home loans, and they do it by charging borrowers interest. In fact, each month when you make a mortgage payment, a portion of that payment goes to pay off the principal on your loan, while a portion goes to pay the interest.
But you might be surprised at how much money you end up spending on interest over the course of paying off your home. In fact, here’s what you could end up spending on a $ 200,000 mortgage.
6 simple tips to get a 1.75% mortgage rate
Secure access to The Ascent’s free guide that reveals how to get the lowest mortgage rate on your new home purchase or when refinancing. Rates are still at their lowest for decades, so act today to avoid missing out.
By submitting your email address, you consent to our sending you money advice as well as products and services which we believe may be of interest to you. You can unsubscribe anytime. Please read our privacy statement and terms and conditions.
What will you spend on mortgage interest?
The amount of money you end up spending on mortgage interest will depend on a number of factors:
- The amount of your mortgage
- The interest rate you get on your loan, which will depend heavily on your credit score
- The amount of money you put on your home
- The duration of your loan
Now let’s say you take out a $ 200,000 mortgage on a $ 250,000 house so that you have made a 20% down payment on that property. Here is the amount you could end up spending on interest during your repayment period:
Keep in mind that the numbers above are based on current average mortgage rates, which can change over time. Also, if you have an excellent credit score for a mortgage (one between the middle and the top of 700), you could easily get an interest rate that is 1% lower than what someone with reasonable credit could. claim.
So what can we learn from these numbers? The main point to remember is that the higher your credit score and the shorter the term of your loan, the lower the interest rate you are likely to have and the less likely you are to pay interest on your loan. your all-inclusive mortgage.
Indeed, if you have good credit, according to our example, paying off your house in 15 years versus 30 could save you $ 69,549 in interest throughout your repayment period. That’s a lot of money.
If your credit score might take some work, you can increase it by:
How to pay less interest on an existing loan
If you already have a mortgage, there’s an easy way for you to lower your interest rate and save money by paying it off: refinance. When you refinance, you are swapping your existing home loan for a new one.
Refinancing generally makes sense when you can reduce the interest rate on your loan by at least 1%. And the higher your credit score, the more likely you are to qualify for a competitive refinance rate.
Many homeowners are shocked at how much mortgage interest costs them over time. If you want to pay as little as possible, make a decent down payment on your home (ideally at least 20%), take out a loan for the shortest possible term, and make an effort to boost your credit rating. It could really save you a bundle.