Purchasing a home would include the amount of a price tag of $1,200,000, which is not used as the only factor to determine how much the monthly mortgage payment will be. Other considerations are down payment, interest rate, and length of term of the loan. A standard mortgage requires a minimum down payment of 20%. There could be some exceptions, however. Then, whatever is left will be the loan amount from which a monthly payment will be calculated. For estimation, you can either use an online mortgage calculator or even approach a loan officer and get a more accurate figure based on your situation.
A 20% down payment on an average 30-year mortgage would leave you with a $960,000 loan on your home priced at $1,200,000. There are also common down payments of 3.5%, 5%, 10%, 15%, and 25%, all resulting in a variety of other amounts for the loan. The lower the down payment, the higher the amount taken as the loan, and hence the monthly payments will also increase. For example, if you paid 3.5% down, the loan would be $1,158,000, and for 5%, it would be $1,140,000.
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Interest rate and loan paydown over 30 years
Interest rates would mostly govern how much you are going to pay for that mortgage over time: the higher the interest rate, the higher the interest paid over the loan’s lifetime, resulting in a higher monthly payment. As an example, let’s say you have a $1,200,000 loan, charging a 2.00% interest rate through 30 years: the monthly payment would be close to $4,435.43. But at 4.00% interest, that figure rises to something like $5,728.98. Interest rates do not only affect monthly payments; they also affect how much of that monthly payment applies to the loan principal versus interest. In the first year of a typical 30-year mortgage with a 3% interest rate, the first few months of that monthly payment will pay interest and not much of that principal. So, say, if your loan was $1,200,000, your first payment would be $5,059.25, of which about $3,000 pays interest and only $2,059.25 reduces the principal. Over time, however, the portion of your payment that goes toward the principal increases as interest decreases with each payment toward the loan.
The loan grows smaller in the monthly installment payments, and interest payments also decrease. In the final years of the mortgage, an increasing percentage of the monthly payment is applied to the principal, which hastens loan repayment. At the end of 30 years, when you make your last payment, the mortgage will be completely paid off, but you will have paid many times its original amount because of interest.
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Final thoughts
Unless you want to put the amounts in and have to make a full monthly payment, it would be prudent to think of a $1,200,000 mortgage. Simply put, it’s a better consideration in terms of the down payment you will make, the interest rate, and the total loan term, considering that these will affect your monthly payment and even the total cost of the loan. You can use the mortgage calculator to estimate your monthly payment, but you also need to consult a lender to get an accurate perspective on your financing options. The higher your down payment against the higher your interest rate, the lower your monthly payment.
