How much interest will I pay on a $400,000 mortgage?

At 6.5% over 30 years, about $510,000 in interest, so roughly $910,000 repaid in total. At 5% the interest is about $373,000, and at 8% about $657,000.

Why is most of my early mortgage payment interest?

Interest is charged each month on the balance you still owe. At the start the balance is at its largest, so most of a fixed payment goes to interest. On a $400,000 loan at 6.5%, about 85% of the first year's payments is interest, and principal doesn't overtake interest until year 20.

Does a 15-year mortgage save money?

On interest, yes, by a lot. On a $400,000 loan at 6.5%, a 15-year term cuts total interest from about $510,000 to about $227,000. The trade-off is a higher payment: principal and interest rise from $2,528 to $3,484 a month.

Housing

What a $400,000 mortgage really costs

Kim and Dev are about to buy their first house, and at the closing table there will be a stack of paper about two inches thick. Somewhere in it is the number that tells you what the loan costs: the total you hand the lender by the last payment. It rarely gets read out loud. The monthly payment does.

Why early payments barely touch the loan

A mortgage payment stays the same every month, but what it pays for changes. Each month the lender charges interest on the balance you still owe, and whatever is left of the payment goes toward the loan itself. At the start the balance is as large as it will ever be, so most of the payment is interest. There’s nothing shady about it. A fixed-payment loan just works that way, and it’s why a rate that sounds modest adds up to a very large total over 30 years.

A worked example

Here’s Kim and Dev’s loan: a $500,000 home with 20% down ($100,000), so a $400,000 loan at 6.5% for 30 years, with $6,000 a year in property tax and $1,800 in insurance. The Mortgage calculator returns:

Principal and interest: $2,528 a month ($3,595 once tax, insurance and maintenance are added)
Total interest over 30 years: $510,178, so about $910,000 repaid for the $400,000 borrowed
Year one: $25,868 of your payments goes to interest and $4,471 to the loan
After 10 years: you have paid $242,498 in interest and still owe $339,105
All-in cost of owning for 30 years: $1,402,178

About 85% of what you pay in the first year is interest, and it takes until year 20 before more of each payment goes to the loan than to the lender. The last line is larger than the loan cost because it also counts the down payment, closing costs, property tax, insurance and upkeep for the full 30 years. The $910,000 tells you what the loan costs. The $1.40 million tells you what owning the house costs, and it’s the one to use if you compare buying against renting, because rent is an all-in number too.

Run your own numbers →Free Mortgage calculator, no sign-up. Change the price, rate or term and watch the interest total move.

What changes the total

The rate. On the same house with the same 20% down, 5% means $2,147 a month and $373,023 in interest. At 8% it’s $2,935 a month and $656,621. Three points of rate are worth $283,598 of interest on one loan. You can’t set the market rate, but quotes from different lenders on the same day can differ, so getting more than one is worth an afternoon.

The term. A 15-year loan at the same 6.5% raises principal and interest to $3,484 a month and cuts total interest to $227,197, less than half. In practice 15-year rates are usually lower than 30-year rates, so the real gap tends to be wider than this.

Extra principal, early. Because the first years are mostly interest, money paid toward the loan early saves far more than the same money paid late. If you do this, check that your servicer applies it to principal. Some hold extra money as an early payment of next month’s bill, which doesn’t reduce the interest you’re charged.

The down payment. A bigger down payment shrinks the loan, but it doesn’t make borrowing cheaper. The rate sets the price of every dollar you borrow. And cash you put into a house is hard to get back out, so keep an emergency fund before putting down more than you need to.

What the math leaves out

Few people keep one loan for 30 years. They sell or refinance first, and the interest they pay is lower because the loan ends early. A fixed payment also gets easier to carry as pay rises with inflation. None of that makes the total wrong. It’s what this loan costs if you keep it to the end, and seeing it is what lets you choose the price, term and payoff speed on purpose. If I were Kim and Dev, I’d flip the calculator to 15 years before closing day, just to see the number.

The numbers above come from TheSharpDollar’s Mortgage calculator with a $500,000 price, 20% down, 6.5%, a 30-year term and its default tax, insurance and maintenance. Run it with your own figures.