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How Much Will Each Mortgage Payment Be?

The amount that you will need to give back to the lender in each payment that you make on the loan is figured out based upon the interest rate of the loan, the term of the loan and how often you will need to make a payment and whether it is a fixed-rate loan or an interest-only loan.

Most of the time, payments have 4 parts:

  1. The principle amount – this is the amount that comes off of the actual amount that you borrowed, without any fees or interest figured in.
  2. The Interest Amount – This is the amount that you pay the lender for use of the money that you are borrowing.
  3. The Escrow Amount – This is the amount that the lender will collect for taxes, insurance and the like.  The money from this part of your payment is placed in “Escrow” and taken out to make the related payment when it is due.
  4. Fees

What Difference Will The Term Of The Loan Make?

The major difference that most people notice as a result of changes in the term of the loan is the size of each payment that they need to make to pay back what they borrowed.  Here’s a quick calculation of the four major mortgage terms at today’s interest rate for a lender network by the name of Lending Tree:

Interest Rate: 4.25%
Amount of Mortgage: $100,000.00
Payment Frequency: Monthly

Payment Frequency: Monthly

 

Term:                          15 Years          20 Years          25 Years          30 Years

Monthly Payments

Fixed-Rate Loan         $752.28           $619.23           $541.74           $491.94          

Interest-Only Loan      $354.17           $354.17           $354.17           $354.17

Notice that the Interest-Only Loan is  always the same rate, regardless as to the length of the loan.  This is because every month you owe the same amount of money assuming you make your payments on time.

Also, for the purpose of the calculations, an ARM (see the Two Loan Categories Article) loan is still a fixed-rate loan.  Its rate just changes periodically in accordance with your loan contract.

Thinking you might like a shorter period?  This is one of those good news/bad news things.

The good news is that you will pay off your mortgage in a relatively short amount of time and therefore pay much less interest.   The bad news is that the monthly mortgage payment as  above is going to be tremendously larger.  For instance a 3-year, fixed-rate loan as above would have a monthly payment of $2,963.53.

The bottom line is that how much each mortgage payment will be depends upon not just the term but rather on all of the factors that I’ve discussed above.