The monthly payment is what everyone compares, but it hides most of the cost of a home loan. This guide follows one typical purchase through all 30 years: a $400,000 home bought with 20% down ($80,000) and a $320,000 30-year fixed loan at 6.5%.
The headline: you pay for the house almost twice
Principal and interest come to $2,022.62 a month. Over 360 payments that is $728,142, of which $408,142 is interest, more than the amount borrowed. Add the down payment and the house has cost $808,142 before property tax, insurance or a single repair.
Early payments are mostly interest
Interest is charged on the remaining balance, which is highest at the start. After five years you have paid $121,357, but only $20,445 of it reduced the loan; $100,912 was interest, and you still owe $299,555. This matters if you might sell or refinance within a few years: most of what you paid will not come back as equity.
What a different rate does
| Rate | Monthly principal & interest | Total interest over 30 years |
|---|---|---|
| 5.5% | $1,817 | $334,093 |
| 6.0% | $1,919 | $370,682 |
| 6.5% | $2,023 | $408,142 |
| 7.0% | $2,129 | $446,428 |
| 7.5% | $2,237 | $485,495 |
Each percentage point changes the payment by roughly $200 a month and the lifetime interest by about $75,000 on this loan. Comparing offers from several lenders and improving your credit score before applying are worth real money.
15 years or 30 years?
Fifteen-year loans usually carry a lower rate. At an assumed 5.75%, the same $320,000 costs $2,657.31 a month, about $635 more, but total interest falls to $158,316: a saving of about $249,826. The catch is the higher fixed payment every month, which leaves less room for emergencies and for other saving.
Paying a little extra
An extra $200 a month toward principal pays the 30-year loan off in 23 years and 5 months instead of 30 and saves about $105,429 of interest. Most US mortgages allow extra payments without penalty; check your loan documents and make sure the extra is applied to principal.
The costs on top of principal and interest
- Property tax: from well under 1% of the home's value a year in some states to over 2% in others. See your state in the mortgage calculator by state.
- Homeowners insurance: usually paid monthly through escrow; highest in states exposed to hurricanes and wildfires.
- PMI: with less than 20% down, private mortgage insurance is added until you reach about 20% to 22% equity.
- HOA fees for condos and many newer neighbourhoods.
- Closing costs: lender fees, title insurance, appraisal and recording, often 2% to 5% of the loan, paid when you buy.
- Maintenance: a common rule of thumb is to set aside 1% to 2% of the home's value every year for repairs.
Put the full monthly figure, not just principal and interest, into the mortgage calculator and compare it with your take-home pay from the paycheck calculator. Lenders commonly look for housing costs within about 28% of gross income.
For information only; not a loan offer. Rates, taxes and fees depend on your lender, property and location.
Frequently asked questions
How much interest will I pay on a $320,000 mortgage?
About $408,142 over 30 years at 6.5%, or $158,316 over 15 years at 5.75%, if you make only the scheduled payments.
Is it better to pay extra on the mortgage or invest?
Extra payments earn a guaranteed return equal to your mortgage rate. Investing may earn more over the long run but with risk. Many people first build an emergency fund and take any employer retirement match, then decide.
Why does so little of my payment go to principal at first?
Interest is charged on the outstanding balance, which is largest at the start. As the balance falls, a growing share of the same payment goes to principal.