Home prices have skyrocketed over the past year, with the median price for an existing home now exceeding $360,000, according to data from the National Association of REALTORS®. But home prices can vary widely, and you can find a house for significantly cheaper in many areas.
If you’re looking for a $200,000 mortgage, the price you can afford depends on
factors like your credit, the type of loan, and the interest rate. Let’s go
over what the monthly payment on a $200,000 mortgage could be, and what to know
before closing on the loan.
Don’t make the mistake of only getting
one quote for a mortgage rate. Credible makes it easy to compare mortgage and mortgage refinance rates from
multiple lenders.
What’s the
monthly payment on a $200,000 mortgage?
Your monthly mortgage payment depends on a number of factors,
including the home price, the size of your down payment, your loan term, your
interest rate, and additional charges like private mortgage insurance (PMI) and
taxes.
To keep things simple, let’s stick to
the main part of a mortgage payment — the principal and interest. The mortgage interest rate and term determine your
monthly payment.
Say you have a $200,000 mortgage with a
30-year term. If your interest rate is 3.5%, your principal and interest
mortgage payment would be $898. With a 5% interest rate, your payment would be
$1,074. Expect your actual payment to be higher once the additional charges are
factored in.
With a 15-year mortgage, your monthly
payment on a $200,000 mortgage at 3.5% jumps to $1,430. At 5% interest, your
payment would be $1,582.
You can calculate mortgage payments
yourself using an online calculator, like Credible’s mortgage payment calculator.
What are the parts of a mortgage payment?
The main part of a mortgage payment is
the principal and interest. The principal goes toward paying down the loan
balance. With a $200,000 mortgage, the $200,000 is your principal — though
you’ll ultimately pay much more than that due to interest.
Interest is what the lender charges in
exchange for allowing you to borrow money. The higher the interest rate, the
higher your monthly payment and the more you pay in total over the life of your
loan.
Most mortgages also include something
called an escrow payment. This is in addition to your principal and interest,
and is used to pay for things like property taxes and homeowners insurance.
Your lender holds your escrow payments in a special account and uses the money
to pay the insurance premiums and tax bills on your behalf. This ensures that
these bills are paid on time, protecting both the lender’s investment and
yours. Depending on the type of loan you take out and your down payment, your
escrow payment may also include PMI.
What is PMI?
Private mortgage insurance is a type of insurance
that protects your lender in the event that you fail to make your monthly
payments. This gives lenders more security when offering mortgages with low
down payments. Lenders typically require PMI on conventional loans when you
make less than a 20% down payment, and you’ll pay for it through your monthly
escrow payment.
How much interest will you
pay on a $200,000 mortgage?
A longer mortgage term and higher
interest rate results in more interest over the life of the loan. Conversely,
the shorter your mortgage term and the lower your rate, the less you’ll pay in
interest.
For a 30-year, $200,000 mortgage at
3.5%, you’ll pay about $123,000 in interest over the loan term. If the interest
rate rises to 5%, your total interest would reach more than $186,000 over those
three decades.
Shorter loan terms require you to pay much less in interest, though your
monthly payments are higher. Say you have a 15-year, $200,000 mortgage at 3.5%
(the same rate as above). You’d pay just $57,358 in total interest. At a 5%
interest rate, you’d pay $84,686 in interest over the life of the loan. You’ll
also pay off your mortgage much earlier than you would
with a 30-year loan.
At the beginning of your loan term,
the majority of your monthly payment goes toward paying this interest. Only a
small amount goes toward the principal. As time passes, the ratio flips. By the
time you’re close to paying off your loan, most of your payment goes toward
principal, with a small amount allocated to interest.
HOW TO REFINANCE YOUR MORTGAGE AND
SAVE BIG
How to get a $200,000
mortgage
Here are the steps you should follow
to take out a $200,000 mortgage:
Step 1: Determine your
budget
You’ll need to consider more than the
sale price and your total mortgage amount when determining the affordability of
a home. You should also take into account your monthly mortgage payment. Review
your monthly budget and see what size mortgage payment fits comfortably with
your finances. This will help you determine the right loan term and interest
rate for you. You’ll also find out whether a $200,000 loan is in your price
range at all.
Take into consideration the down
payment as well. The down payment is money you pay at closing, usually a
certain percentage of the home price. The difference between your down payment
and the sale price is what your mortgage covers.
Different loan types have different
down payment requirements. A conventional loan, for instance, can require as
little as 3% down in many cases. An FHA loan can have a down payment as low as
3.5%, if you have a credit score of 580 or higher. If you have a score between
500 and 579, you’ll need to make a 10% down payment for an FHA loan.
Step 2: Check your credit
Your credit score plays a major role
in determining the mortgage rate you receive and whether or not you’ll qualify
for the loan.
Many loan programs have minimum credit
score requirements. For example, a conventional loan often requires a 620
credit score, while an FHA loan can be available to people with scores as low
as 500. Higher credit scores generally yield lower interest rates. Know your
credit score so that you can become familiar with the options available to
you.
To find out your score, request your
credit reports from the three major credit bureaus: Equifax, Experian, and
TransUnion. Under federal law, you can get a free copy of your report each year
from each bureau at AnnualCreditReport.com.
When you receive your credit reports,
go over them with a close eye. There may be errors, such as incorrect balances
or accounts listed as past due that are actually current. You can dispute any
incorrect information with the credit bureau and have it corrected, potentially
boosting your score.
Step 3: Prequalify for a
mortgage
Once you’re in a good position to buy
a home, you can approach a few different lenders to prequalify for a mortgage.
This process involves giving the lender a little bit of your personal
information to run a credit check. The lender will then let you know the size
of the loan you may qualify for and at what interest rate. Prequalification
typically only takes a few minutes.
A prequalification letter isn’t a firm
commitment to lend, but it gives you a good idea of the mortgage you’ll
ultimately be able to receive.
Credible allows you to compare actual prequalified rates from multiple lenders at
once.
Step 4: Hunt
for a home
With your price range now set, you can
search for a home. A Realtor may be able to help you find houses that fit your
budget with all the features you need. Your agent can also help you navigate the process of putting in an offer.
Step 5: Fill out a full
loan application
After the seller accepts your offer,
pick the lender you prequalified with that’ll give you the best terms on a
mortgage. Take a look at the interest rate, down payment requirement, and other
closing costs. Once you’ve determined the best fit, your loan officer will give
you instructions on how to proceed to the full loan application.
You’ll likely need to provide
documentation of your income and assets. This could include:
W-2s
Tax returns
Pay stubs
Bank statements
Investment account statements
Your lender will also order a home
appraisal to make sure it's worth the price. During this time, you should also
hire a home inspector to evaluate the home and make sure it has no major issues
that need to be addressed.
Step 6: Close on your loan
If all your paperwork checks out,
you’ll be ready to close on your mortgage and take the keys to your new home.
Make sure not to take out any new loans or apply for new credit cards between
when you apply for the mortgage and closing, as this can interfere with your
loan underwriting. Your loan officer and Realtor will give you instructions on
what you’ll need to bring to the closing table.
SHOULD YOU PAY OFF YOUR MORTGAGE OR
INVEST THE MONEY?
Where to get a $200,000
mortgage
You have a number of options when it
comes to taking out a $200,000 mortgage. Here are a few of the most common:
Banks — Your
local bank likely has loan officers on hand who can help guide you through the
process of taking out a loan. This can be a convenient way to get in-person
service. However, be sure to watch out for lender fees, and compare the rates
you’re offered with other options.
Credit unions — While
banks are for-profit, credit unions are not-for-profit financial institutions
owned by their members. They often offer lower rates than you’ll find at banks.
But you’ll likely need to become a member to take out a mortgage, and
qualifications for membership can vary.
Online lenders — A number
of online lenders can lend throughout the country. Without a brick-and-mortar
presence, some online lenders can afford to offer lower rates and fees. But
you’ll need to make sure you’re comfortable with the online application process
and the lender’s customer service.
Source:foxbusiness.com