Adding an extra $10,000 to your mortgage loan amount can significantly increase your monthly payments. While it may not seem like much compared to the total loan amount, that extra $10,000 can really add up over the life of a 30-year mortgage
In this article, we’ll look at how that $10,000 impacts your monthly mortgage payment and overall costs. We’ll also discuss other ways you can reduce your loan amount to lower your payments.
How Mortgage Payments Are Calculated
Before we look specifically at the $10,000 amount, let’s review how monthly mortgage payments are calculated. Four key factors go into determining your payment:
- Loan amount – The amount you are borrowing to purchase the home.
- Interest rate – The annual rate charged on the loan, such as 3.5%.
- Loan term – The length of the loan, typically 15 or 30 years.
- Taxes and insurance – The monthly costs for property taxes and homeowners insurance.
Your principal and interest payment is based on the loan amount, rate, and term. Taxes and insurance are added on top to get your total monthly payment.
With that background, let’s see how $10000 impacts a sample mortgage.
Impact of $10,000 on a $200,000 Loan
For this example let’s assume we have a 30-year fixed-rate mortgage for $200,000 at 4% interest.
- Original Loan Amount: $200,000
- Interest Rate: 4%
- Loan Term: 30 years
For that $200,000 loan, the principal and interest payment would be about $955. With estimated taxes and insurance of $350, the total monthly payment is $1,305.
Now let’s say we add $10,000 to the loan amount, raising it to $210,000. Here’s how that impacts the monthly costs:
- New Loan Amount: $210,000
- Interest Rate: 4%
- Monthly Principal & Interest: $1,010 (increased by $55)
- Taxes & Insurance: $350
- New Total Payment: $1,360 (increased by $55)
By increasing the loan amount by $10,000, the monthly principal and interest payment goes up by $55. That’s because we’re now paying interest on a higher loan balance each month.
While an extra $55 per month may not seem very significant, it definitely adds up over the life of the loan.
Over 360 months (30 years), that additional $55/month totals $19,800 in extra interest payments.
Alternative Ways to Reduce Monthly Payments
As you can see, even small changes in your loan amount can noticeably impact your monthly mortgage payment over time. Here are some other ways you could reduce your payment instead of adding extra to the loan amount:
-
Make a larger down payment – Putting down 20% instead of 10% cuts your loan amount and interest costs substantially.
-
Shorten the loan term – Opting for a 15-year mortgage reduces the amount of interest paid over the life of the loan.
-
Lower the interest rate – Pay discount points to buy down your rate or improve your credit score. Even small rate reductions save thousands.
-
Reduce taxes and insurance – Shop around for lower homeowners insurance premiums and challenge property tax assessments.
-
Buy a less expensive house – The purchase price has a direct impact on loan amount, payments, and interest.
Any of those steps can potentially save you more per month than keeping your loan amount lower by $10,000. Crunch the numbers carefully and see which option works best for your situation.
Key Takeaways on $10,000 and Monthly Payments
Here are some key points to remember:
-
Even small changes in your loan amount can significantly impact monthly payments, especially over decades.
-
An extra $10,000 added to a 30-year fixed mortgage would increase monthly principal and interest by around $50-$60.
-
That extra $50 or so per month results in thousands of dollars in additional interest payments over the life of the loan.
-
You may be better off putting that $10,000 towards a larger down payment or paying for discount points to reduce the rate.
-
Carefully consider each component that goes into your monthly mortgage payment, not just the loan amount. An adjustment to any part can help lower your costs.
With mortgage rates on the rise, it’s especially important to optimize your loan amount, down payment, rate, and term to keep your payments as affordable as possible. Be sure to use a mortgage calculator to see the impact of any changes and make the most informed decision. Small tweaks can really add up over time and help you save.
Calculating costs in addition to principal and interest
This calculator lets you fine-tune your payment by entering your annual property tax, annual home insurance premium and monthly homeowner association fee.
The “Amortization Schedule” tab displays how much youll pay in principal and interest each month, as well as the remaining amount you owe (“Principal balance”) after making that payment.
Explanation of terminology
- Down payment: The cash you pay upfront. Your loan amount is the homes price minus your down payment.
- Interest rate: How much the lender charges you to lend you the money. Interest rates are expressed as an annual percentage. A lower interest rate gives you a smaller monthly payment.
- Loan term (years): The term is how many years it will take to pay off the mortgage. A longer term gives you a lower monthly payment than a shorter term. But you pay more total interest with a longer term because you pay interest for more months.
- Property taxes: The annual tax assessed by a government authority on your home and land. You pay about one-twelfth of your annual tax bill with each mortgage payment, and the servicer saves them in an escrow account. When the taxes are due, the loan servicer pays them.
- Homeowners insurance: Your policy covers damage and financial losses from fire, storms, theft, a tree falling on your house and other bad things. As with property taxes, you pay roughly one-twelfth of your annual premium each month, and the servicer pays the bill when its due.
- Monthly HOA fees: The amount you may pay each month if you belong to a homeowners association. Typically, these dues are billed directly, not added to the monthly mortgage payment. Because HOA dues can be easy to forget when considering the cost of homeownership, NerdWallets mortgage calculator allows you to enter them here.
What Paying an Extra $1000/Month Does To Your Mortgage
FAQ
How much does a mortgage payment increase for every $5000?
How much mortgage can I get for $10,000 a month?
| Monthly Pre-Tax Income | Maximum Monthly Mortgage Payment Using 36% Rule | How Much You Can Afford |
|---|---|---|
| $4,000 | $1,440 | $308,000 |
| $6,000 | $2,160 | $462,000 |
| $8,000 | $2,880 | $531,000 |
| $10,000 | $3,600 | $666,000 |
How much is 2 points on a mortgage?
What is the monthly payment on a $600000 mortgage?
Should you add a mortgage payment a month?
Adding just one extra payment a month will help you be mortgage-free sooner and save you potentially thousands in interest. Eliminate your monthly mortgage payment and enjoy the additional cash flow. No longer having a mortgage payment means you can now use those funds to invest.
How much does it cost to increase a mortgage payment?
In general, estimate about $5 per $1,000 or $20 per $5,000 increase in the purchase price. Although it does differ slightly as interest rates fluctuate, this is the easiest way to estimate changes in your monthly payment. How much does 100000 add to a mortgage payment?
How many bi-weekly mortgage payments can you make a year?
There are 26 bi-weekly periods in the year, but making only two payments a month would result in 24 payments. Instead of paying twice a week, you can achieve the same results by adding 1/12th of your mortgage payment to your monthly payment. Over the course of the year, you will have paid the additional month.
How often do you pay extra on a mortgage?
One of the most common ways that people pay extra toward their mortgages is to make bi-weekly mortgage payments. Payments are made every two weeks, not just twice a month, which results in an extra mortgage payment each year. There are 26 bi-weekly periods in the year, but making only two payments a month would result in 24 payments.
How do I use the additional payments mortgage calculator?
This additional payments mortgage calculator makes it easier to estimate your potential savings and payoff date. Below is a detailed summary of how to enter the appropriate loan information for a new or existing mortgage: Loan type. Choose “purchase” if you plan on buying a home and making extra payments immediately.
How much does a 30-year mortgage cost per month?
At a 4% fixed interest rate, your monthly mortgage payment on a 30-year mortgage might total $477.42 a month, while a 15-year might cost $739.69 a month. Other costs and fees related to your mortgage may increase this number. How much is a 250k mortgage per month?