What Determines the Cost of a Mortgage? There are five factors that determine the ultimate cost of a mortgage.
The principal, or amount of the loan, is the total amount you borrow (the purchase price minus your down payment). The interest rate adds significantly to the cost of your mortgage. Fixed or adjustable, the interest paid at the end of the loan can exceed the original cost of the home itself. For instance, a $100,000 loan balance at 8.5% for 30 years will cost you $277,000 by the time the loan is retired. The term of the loan is the length of time until the loan is paid off. A longer term means more interest and higher cost. Points are interest paid on the loan and they’re purely optional. You pay points at closing if you want to reduce the interest rate and make your monthly payments smaller. One point equals one percent of the loan amount. Fees are paid to the lender at closing to cover the costs of preparing the mortgage. They can vary according to where you live and what type of loan you’re securing.
The principal, or amount of the loan, is the total amount you borrow (the purchase price minus your downpayment). The interest rate adds significantly to the cost of your mortgage. Fixed or adjustable, the interest paid at the end of the loan can exceed the original cost of the home itself. For instance, a $100,000 loan balance at 8.5% for 30 years will cost you $277,000 by the time the loan is retired. The term of the loan is the length of time until the loan is paid off. A longer term means more interest and higher cost. Points are interest paid on the loan and they’re purely optional. You pay points at closing if you want to reduce the interest rate and make your monthly payments smaller. One point equals one percent of the loan amount. Fees are paid to the lender at closing to cover the costs of preparing the mortgage. They can vary according to where you live and what type of loan you’re securing.
