Worked mortgage examples

Example 1: full monthly housing budget

Suppose a home costs $400,000 with an $80,000 down payment. The principal borrowed is $320,000. At 6.5% fixed interest for 30 years, principal and interest are about $2,023 per month. Add $4,800 annual property tax ($400/month), $1,800 annual homeowners insurance ($150/month), and $100/month HOA fees. The resulting estimated total is about $2,673/month, before maintenance, utilities, or any PMI.

Notice the distinction: a household budgeting only the advertised $2,023 mortgage payment would overlook $650/month in these recurring ownership costs.

Example 2: comparing down payments

On a $400,000 property, a 20% down payment is $80,000 and creates a $320,000 loan. A 10% down payment is $40,000 and creates a $360,000 loan. At the same 6.5% and 30-year term, the larger loan has roughly $253 more monthly principal-and-interest cost. The smaller down payment may also trigger mortgage insurance and different lender pricing.

But using all available savings for the down payment can leave insufficient reserves. The financially appropriate choice depends on emergency savings, closing costs, and the actual loan offers.

Example 3: extra principal payments

Consider a $320,000 loan at 6.5% for 30 years. Adding $200/month directly to principal can shorten payoff and reduce interest substantially. The exact months and savings are calculated by the extra-payment tool; they depend on when extra payments begin and whether the servicer applies them as intended.

Keep enough cash for emergency expenses and consider higher-interest debts before committing to recurring extra mortgage payments.

Example 4: refinance costs

A homeowner with a $280,000 remaining balance and 25 years left considers replacing a 7.25% loan with a 6.25% loan, with $5,000 in closing costs. Compare monthly principal and interest using the same 25-year remaining term. Divide the payment savings into the $5,000 upfront cost for a simple break-even estimate.

If the borrower instead restarts a new 30-year loan, the monthly payment could fall further while total interest paid over the new term rises. Our simplified break-even metric does not substitute for a complete cost comparison.

Example 5: discount points

One discount point is commonly 1% of the loan amount, so one point on a $320,000 mortgage costs $3,200. Whether it is worthwhile depends on the rate reduction actually quoted, monthly savings, and how long the loan remains outstanding. There is no universal rule that one point buys a fixed rate reduction.