How much will a $400,000 mortgage cost?

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How much you’ll pay for a $400,000 mortgage will depend on your credit score and the interest rate you’re offered. (iStock)

When you take out a $400,000 mortgage, you’re signing up for far more than $400,000 in costs. Beyond the monthly payment, you’ll need to account for taxes, insurance, fees, and a host of other expenses. But the specific amount you’ll pay can vary widely — it depends on the type of mortgage you take out, as well as your credit history and where you live.

Here’s everything you need to know about getting a $400,000 mortgage.

What are the monthly payments for a $400,000 mortgage?

The monthly payment on a $400,000 mortgage is fairly easy to predict. Mainly, you need to know the interest rate you’ll be paying. For a common APR of 4%, your monthly payment on a 30-year mortgage would be $1,910 (plus taxes and insurance).

Your monthly payment amount has three main components.

Principal: This is the amount that goes toward paying down the $400,000 balance of the mortgage.
Interest: This is the cost of borrowing money, paid to the lender.
Escrow costs: This typically covers homeowners insurance, homeowners association fees, and annual property taxes, and can vary significantly depending on where you live. You pay a bit each month, and your lender handles the payment. Holding the money in escrow helps your lender ensure that you’ll make these required payments.

Your monthly payment depends mostly on the interest rate and term of your mortgage. You can use your APR to calculate what your monthly payment will be for a $400,000 fixed-rate mortgage, but that doesn’t include escrow costs. These costs typically add a few hundred dollars onto your monthly payment, but you’ll need to talk to your lender to get an estimate.

With a 3.5% APR, your monthly payment on a 15-year mortgage would be $2,860. Your monthly payment on a 30-year mortgage with the same APR would be $1,796.

Meanwhile, with a 5% APR, your 15-year monthly payment would be $3,163, while a 30-year mortgage payment would be $2,147.

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

The mortgage interest you pay depends on the rate your lender charges and the length of the loan. Longer loan terms typically have higher interest rates. And you’ll usually pay more in interest over the life of a longer-term loan.

You may see the interest rate quoted as APR, which stands for "annual percentage rate." The APR is a broader measure of the costs of a mortgage, including the interest rate and fees. Interest rates or APRs are dictated by overall market conditions and your credit history. The better your credit score, the lower the interest rate you’ll be able to get.

Credible makes it easy to compare mortgage rates from various lenders.

What’s the amortization schedule for a $400,000 mortgage?

When you take out a fixed-rate mortgage, your total monthly principal and interest payment doesn’t change for the life of the loan. But the amount of your payment that goes toward principal versus interest does change. This is known as an amortization schedule.

At the beginning of your loan, the amount going toward interest will be far higher than the amount going toward the principal. The situation slowly reverses over the course of the mortgage. By the end, you’ll be paying more in principal than interest.

The first year of an amortization schedule for a 30-year, $400,000 mortgage with a 4% APR would look like this (note that the amounts going toward principal, and interest will change slightly over the course of the year):

Beginning balance: $400,000
Monthly payment: $1,909.66
Monthly principal: $576.33
Monthly interest: $1,333.33
End-of-year balance: $393,553.66

Note that at the end of the year, your loan balance is reduced only by the portion of your monthly payment that went toward the principal. The interest portion doesn’t reduce your loan balance.

By the final year of the loan, the schedule looks like this:

Beginning balance: $22,427.84
Monthly payment: $1,909.66
Monthly principal: $1,834.90
Monthly interest: $74.76
Ending balance: $0

On a 15-year mortgage, the amortization schedule works similarly — but you’ll be paying the principal down much faster and paying much less in interest.

Can I lower my monthly payment?

If you want to lower your monthly payment on a $400,000 mortgage, you have several options.

Increase your loan term. The longer your mortgage, the lower your monthly payment will be. If you have a 15-year mortgage, refinancing to a 30-year mortgage will give you considerably lower monthly payments.
Decrease your loan size. If you can make a larger down payment, perhaps decreasing your $400,000 mortgage to $380,000, your monthly payment will shrink as well.
Get a better interest rate. Improving your credit score will lower the interest rate you’re offered, which will decrease your monthly payment. You may also be able to reduce your interest rate by taking mortgage points.
Get rid of PMI. If you’re taking out a conventional loan, you’ll need to pay private mortgage insurance, or PMI, if you make a down payment of less than 20%. PMI is included in your escrow amount in your monthly payment. Once you reach 20% equity in your property, you’re able to drop PMI, lowering your monthly payment. You can get there faster by making extra principal payments, refinancing, or asking your lender to reappraise your property if values have gone up.

Costs that come with homeownership and mortgages

Taking out a mortgage and owning a home comes with many additional costs besides just your monthly loan payment.

Recurring costs

Recurring costs are expenses that you’ll face regularly. The average cost to maintain a home can range from 3% to 6% of the home’s value each year (depending on when it was built), according to the National Association of Home Builders, or NAHB.

Some of these costs were discussed already — things like taxes, insurance, homeowner's association dues, and private mortgage insurance that will be part of your monthly payment via escrow. Here are some other recurring costs to consider.

Utilities — This includes electricity, water, sewer, natural gas, and other potential bills.
Maintenance — The average homeowner will spend around $1,000 per year on maintenance, according to the NAHB, though this can vary significantly. A good rule of thumb is to set aside 1% of the home’s value per year for maintenance.
Home warranty — If you choose to buy a home warranty policy to protect yourself against potential failures in your appliances or other systems, you’ll pay a premium each month.

Non-recurring costs

Mortgages also come with a number of one-time costs — some that you might pay at closing, and others you’ll pay at irregular intervals. Here are some non-recurring costs you may want to plan for.

Closing costs — This encompasses a number of fees you might pay to complete your loan, including an origination fee, appraisal fee, home inspection fee, title search fee, attorney fees, and other costs.
Points — Your lender may allow you to pay a fee in exchange for a lower interest rate. This is called buying points, and each point generally costs 1% of the loan amount.
Funding fee — Depending on the type of loan you choose, you may need to pay a funding fee as part of your mortgage. VA loans typically have these; for example, — the funding fee helps lower the cost of the loan for taxpayers.
Renovations — You may choose to invest a significant amount of money into home improvement projects, like updating your kitchen or building an addition.

How to get a $400,000 mortgage

Getting a mortgage can be a time-consuming process. Here are the basic steps.

Define your budget. While it can be tempting to jump immediately into house-hunting, it’s wise to determine your price range first. Consider how large a monthly payment you can comfortably afford, as well as how much money you have saved for a down payment. Don’t forget to factor in other costs, like insurance and closing costs. You can use a tool like Credible’s Mortgage Payment Calculator to find out how home prices will translate into monthly payments.
Get your credit report. Your credit score helps determine the interest rate you’re offered. You’ll want to know your credit score ahead of time to help you shop. You can get free copies of your credit report from each of the three credit-rating agencies every year. Use a site like AnnualCreditReport.com to request them.
Get pre-approved. Many mortgage lenders allow you to fill out a short form online and get pre-approved for a certain loan amount. While the pre-approval isn’t binding, it does give you a sense of how much you can afford or be qualified to borrow. This can help you narrow down your price range and give you more confidence when you shop for a home.
Compare rates and loans. It’s worth your while to be pre-approved by a few different lenders to see what types of loans and interest rates you’re offered. Pre-approval usually involves a credit check, which the lender will use to offer you an interest rate on a mortgage. You can compare interest rates at different lenders to find the best deal. Even a small difference in your interest rate can equate to thousands of dollars in interest savings over a 30-year mortgage.
Find a home. With a pre-approval letter in hand, you can finish shopping for a home. You’ll have reasonable assurance that you’ll qualify for a loan to buy a house if it falls within the price range in your pre-approval.
Make an offer. You’ll negotiate with the seller over all terms of the sale. Sellers are generally more comfortable agreeing to a buyer who’s been pre-approved for a loan.
Complete your mortgage application. With a signed purchase agreement, it’s time to go through the full mortgage application process. The lender you’ve chosen will guide you through that process, which generally involves submitting documentation on your income, assets, and employment. Your lender will verify all your information and determine if you qualify for the loan.
Get approved. Underwriting a loan can take several weeks, and your loan officer may ask you for more documentation during that process. In the end, though, you’ll get a final decision on the loan.
Prepare for closing. At least three business days before your closing is scheduled, you’ll get a closing disclosure document that verifies the terms of the loan and lists all the costs you’ll need to pay.
Close on your loan. You’ll sign large stacks of documents, and then get the keys to your new home.

With Credible, you can easily compare mortgage rates from many different lenders.

Common loan types

There are a wealth of different types of mortgages on the market, and lenders generally offer several different options. Here are a few of the most common.

Fixed-rate mortgages: These loans offer a set interest rate and monthly payment that won’t change for the life of the loan. Common loan terms are 30 years and 15 years, though some lenders will let you choose other lengths.
Adjustable-rate mortgages (ARMs): With these loans, the interest rate is fixed for a certain number of years but will then change over the course of the loan — and so will your monthly payment. ARMs are typically described with two numbers, such as a 5/1 ARM or a 7/1 ARM. The first number refers to the number of years the initial interest rate is fixed for. The second number is how often the interest rate will change after that. A 5/1 ARM has a fixed rate for five years, and then adjusts every year after that. Adjustable-rate mortgages often have lower initial interest rates than you’d find on a fixed-rate loan, but there’s the risk that they’ll rise over time.
FHA loans: These loans are guaranteed by the Federal Housing Administration and offer people with lower credit scores (as low as 500) to qualify for a mortgage. People with a credit score of 580 can get a loan with a 3.5% down payment. Those with scores in the 500-579 range will be required to make a 10% down payment.
VA loans: These loans allow military service members and veterans to buy a home with no down payment.
USDA loans: This program helps low- to moderate-income people in rural areas buy homes with no down payment.

What should I consider before applying for a $400,000 mortgage?

It’s important to fully understand the costs of a mortgage before applying for one. Before applying for a $400,000 mortgage, make sure you’ve figured out how much you have saved for a down payment on a home. This will help you determine what loans you may be eligible for. Different loan programs have different requirements. Also determine what payment amount fits comfortably in your monthly budget.

You can use a site like Credible to quickly gauge what mortgage interest rates you may qualify for, helping you determine how much you can afford.

As you compare loan offers from different lenders, be sure to ask about things like fees and prepayment penalties. A prepayment penalty is a fee you pay if you pay off your mortgage early, which can make it difficult to refinance down the line. Some lenders also charge an origination or underwriting fee, which can be steep.

How much income do I need to afford a $400,000 mortgage?

As a general rule of thumb, you want to keep your monthly mortgage payment to 28% of your gross monthly income or less. But there’s some flexibility here. Most lenders evaluate what’s known as a debt-to-income ratio when considering you for a mortgage.

To calculate this ratio, take all your monthly debt payments (including your potential new mortgage payment) and divide it by your monthly income. The limit for many loans is 43%. Say you make $75,000 per year, or $6,250 per month. If you have a monthly car loan payment of $200, a student loan payment of $300, and you’re considering a mortgage with a $2,000 monthly payment, that gives you a debt-to-income ratio of 40% ($2,500/$6,250 = 0.4).

If your payment on a $400,000 mortgage is $2,200 after your escrow payment is factored in, that means you’ll need an annual income of about $94,000 to keep it within 28%. But with no other debt, you may qualify with an income as low as $61,395.

As you can see, many factors determine how much you can afford to pay for a house, so it’s important to do your due diligence before applying for a $400,000 mortgage.