Question: “I will be taking out a loan for about $200,000 to cover the cost of a home. How much will my mortgage payments be each month, based on this amount? Do I just divide it by the number of installments or months, and then add in the interest?”
Let’s assume you’re talking about a “standard” 30-year loan, since you didn’t specify. On a loan of this size spread over 30 years, the monthly payments could be anywhere from $1,000 to $1,400 (or more). It depends on the interest rate you receive and other factors.
The Parts of a Mortgage Payment
You can approximate the monthly payments on a $200,000 home loan by using a mortgage calculator with an average interest rate. But this will only give you a ballpark figure. In order to get a more accurate picture of what you’ll be paying each month in housing costs, you need to consider all of the components that make up the monthly payment. This includes insurance and taxes.
Generally speaking, there are four or five components that determine the monthly amount you have to pay. Understanding these components will help you determine how much your payments might be for a $200,000 loan.
The acronym PITI is used to describe the four primary parts of a mortgage payment. Here’s what those four letters stand for:
- P – The letter ‘P’ stands for the principal amount you are borrowing. In your case, that would be $200,000. This factor determines the amount you’ll pay each month, more than any other single item.
- I – The first ‘I’ stands for interest. This refers to the interest rate the lender assigns to your loan.
- T – The letter ‘T’ stands for taxes. These would be your real estate property taxes. They are generally added into the monthly payment amount.
- I – The second letter ‘I’ refers to insurance. This is the homeowners insurance policy you’ll need to have in place, before you can close on the home.
If you get a loan for more than 80% of the purchase price, you’ll also have to pay for private mortgage insurance or PMI. This is an additional cost that could increase the size of your monthly payment. You can avoid this additional charge by making a down payment of 20% or more, or by “piggybacking” two loans so that neither of them accounts for than 80% of the sale price.
How Much Will You Pay on a $200,000 Loan?
So, how much would the mortgage payments be on a $200,000 loan, based on the four factors above? If amortized over 30 years, they would probably fall somewhere between $1,000 and $1,400.
If you know all four of the PITI elements above, you could determine the amount more precisely. To do that, you would simply enter the information into a standard loan calculator. If you only know the principal amount and the interest rate, you can still get a pretty good idea how much your payments will be each month.
Let’s run a sample calculation for a 30-year home loan in the amount of $200,000. I’ll use the average interest rate at the time of publication, which was 4.14% according to Freddie Mac. Plugging these numbers into a calculator, I get the following:
- Loan size: $200,000
- Interest rate: 4.14%
- Monthly payment: $1,401
Breaking it down even further, the individual components might look something like this:
- Principal and interest: $971
- Property taxes: $200
- Homeowners insurance: $67
- Private mortgage insurance: $163
Granted, your numbers could be completely different. Your interest rate might be higher or lower than the one used in the example. You might not have to pay PMI. There are several variables that determine the monthly payment. The purpose of this calculation is simply to show you (A) how much you might pay each month on a $200,000 home loan, and (B) how the monthly payment breaks down into individual components. Based on this example, you can do your own calculations.
How to Figure Out the Interest Rate
You can’t figure the interest rate into the mix until you get a rate quote from a mortgage lender. This happens on the front end of the process, shortly after you apply.
It typically goes like this. You shop around for a loan. Lenders tell you what rate they are willing to offer, along with other terms and fees. When you submit an official application, they are required to give you a Good Faith Estimate (GFE) form that includes the interest rate, term, and other aspects of the loan.
When you find a deal you’re happy with, you sign an agreement to lock in the rate. This prevents it from going up or down with market trends, between the time you lock and the time you actually close on the loan.
So you have to get a rate quote or offer from a mortgage lender first. Then you’ll be able to figure the interest rate and payments on a $200,000 loan (or whatever amount you are borrowing). You would take the interest, the principal, and the term of the loan, and plug all of that data into a mortgage calculator. Of course, your lender will estimate your monthly payments for you, when they give you the GFE form. But it’s helpful to understand the math for yourself.
Disclaimers: This article answers the question, How much will my mortgage payments be for a $200,000 loan? It includes hypothetical but realistic scenarios. These scenarios are offered for educational purpose only. Your circumstances and costs may differ from those presented above.