Content provided by Credible. Credible is solely responsible for this content and the services it provides. New York Post receives a fee if you click a link below and close a loan through Credible. WHY TRUST CREDIBLE: Our goal is to give you the tools and confidence you need to improve your finances. We do that by creating expert-curated and deeply-researched articles that adhere to our editorial guidelines. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS #1681276, is referred to here as "Credible."The cost of a $400,000 mortgage includes more than the principal payment each month. Your monthly mortgage payment includes several other costs, such as interest and taxes, which can quickly increase the overall cost of the loan.
It’s important to consider the full cost of a $400,000 mortgage loan and its impact on your budget each month. This will be a critical factor as you’re determining how much mortgage you can afford.
What are the monthly payments on a $400,000 mortgage?
A $400,000 mortgage payment will typically include three main components:
- Principal: This is the amount that goes directly toward the balance of your mortgage. The portion of your monthly payment that includes the principal changes throughout the life of the mortgage. Initially, more of your payment will go toward interest, and gradually shift to paying off more of the principal over the life of your loan.
- Interest: Interest is the cost of borrowing money, paid directly to the lender. It typically makes up the largest share of the monthly payment at the beginning of the loan and significantly impacts the size of your monthly payment. “In some cases, the increase in interest rates can lower a buyer’s purchasing power as the higher rate will increase the debt-to-income ratio,” says Shelly Campbell, a Mortgage Loan Originator with Augusta Mortgage Company.
- Escrow: An escrow account covers your annual property tax and homeowners insurance premiums. You contribute monthly to this account and it’s included in your overall mortgage payment. Holding these funds in escrow ensures your lender that these expenses will be paid.
Additionally, the size of your monthly payment will depend on your repayment term. Here’s an idea of what you might have to pay each month on a $400K mortgage with a 15- or 30-year term at an average annual percentage rate (APR) of 7.00%:
| Repayment term | Loan amount | APR | Monthly payment |
|---|---|---|---|
| 15 years | $400,000 | 7.00% | $3,595 |
| 30 years | $400,000 | 7.00% | $2,661 |
You can use a mortgage calculator to estimate your monthly payments.
Where to get a $400,000 mortgage
You can get a $400,000 mortgage from a variety of sources, including banks, credit unions, and online lenders. Keep in mind that if you apply with a credit union, you’ll likely need to be a member first.
Eligibility requirements, interest rates, and repayment terms will vary depending on the lender, so make sure to shop around to find the best loan for your unique financial situation.
What should I consider before applying for a $400,000 mortgage?
Before you take out a $400,000 mortgage, it’s crucial to be aware of the additional costs that come with it. You can expect to pay the following expenses:
- Down payment: This is an upfront cost equal to a percentage of the overall price of the home. The larger your down payment, the smaller your overall loan and monthly payments will be. Plus, if you put at least 20% down, you can avoid having to buy private mortgage insurance (PMI).
- Closing costs: These are fees the lender charges for originating the loan and borrowing money, plus other charges. “Additional costs for the buyer will include closing costs, which consist of origination fee, underwriting fee, credit report fee, appraisal fee, attorney fees, transfer taxes, flood certification, and others,” explains Campbell. Closing costs typically range from 2% to 5% of your loan amount.
- Mortgage points: Points are a percentage of the loan amount that you’ll pay to your lender upfront. If you opt to pay points, you can get a lower interest rate and lower the total cost of your loan.
- Interest: The interest rate you’ll qualify for will be largely determined by your credit score, the size of your down payment, the amount you borrow, and the length of your loan term. Keep in mind that shorter-term loans typically come with lower interest rates.
How much interest will I pay on a $400,000 mortgage?
The amount of interest you’ll pay over the life of your loan will vary depending on your principal balance, interest rate, and the length of your repayment term. Generally, the longer your loan term and the higher your APR, the more interest you’ll pay over time.
Here’s how much interest you can expect to pay depending on your repayment term:
| Repayment term | Total interest paid with 7.00% APR |
|---|---|
| 30 years | $558,036 |
| 15 years | $247,156 |
Frequently asked questions
Here are answers to some of the most commonly asked questions about getting a $400,000 mortgage:
How much income do I need for a $400,000 mortgage?
Each lender has its own set of requirements for a loan, including a $400,000 mortgage. To determine how much income you need, your lender will review and verify your sources of income, any outstanding debts you owe, your credit score, and estimated housing costs.
How do I get the best interest rate for a mortgage?
Several factors determine your interest rate, including your credit score, loan type, location of the property, and down payment amount. Comparing multiple lenders, improving your credit score, and putting down a substantial down payment can help you lock in a low interest rate.
What is an escrow account?
An escrow account is used for two different purposes: holding funds during a real estate transaction and holding money for housing expenses.
For example, escrow accounts are often used to house an earnest money deposit before closing on a property. Lenders also use escrow accounts to hold money for annual expenses, such as property taxes or homeowners insurance.
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