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Mortgage Basics
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Home prices and interest rates have significantly increased in recent years, making homeownership unaffordable for many Canadians. This higher cost of homeownership has left Canadians ready to purchase a home but having doubts about the long-term affordability of committing to a mortgage.
If you’re considering a mortgage of $400,000, it’s essential to know what borrowing costs may look like each month and over the life of the loan. Our post will walk you through these considerations, answering questions about the cost of monthly repayments and how much interest you will pay on the mortgage based on various interest rate scenarios and amortization periods.
Key Takeaways
- The interest rate and amortization will determine your monthly payments on a $400,000 mortgage.
- Changes to interest rates and the amortization period will influence how much total interest is paid over the life of a $400,000 mortgage.
- A longer amortization means you will have smaller monthly mortgage payments but will pay more interest over the life of the mortgage.
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Monthly Payments for a $400k Mortgage
Monthly payments on a $400,000 mortgage will depend on several factors, including your interest rate and the amortization.
A mortgage calculator like nesto’s can help you estimate payments based on these variables. Typically, your mortgage payment will comprise the principal amount and interest.
If you put down less than 20% as a down payment, your mortgage will include mortgage default insurance unless paid with cash, which is not added to your mortgage.
By paying for your mortgage insurance with cash, you can take advantage of the lower insured mortgage rates without amortizing it over the duration of your mortgage. Additionally, you have the option with most lenders to include property taxes as part of your mortgage payment, which will be collected and remitted on your behalf.
- For example, using nesto’s current 5-year fixed rate of 5.39%, your monthly payment on a $400K mortgage with a 25-year amortization would total around $2,416, while a 30-year amortization would be approximately $2,229. This lower amount is due to the principal being spread out over an extra 5 years, but keep in mind that you will pay more in interest-carrying costs the longer your amortization.
Note: Your payment may differ depending on the mortgage term, amortization, and payment frequency you select when you obtain your mortgage.
Where to Find the Best Rates on a $400k Mortgage
Securing the best interest rate on your mortgage can significantly affect your total monthly costs. A great place to start is to compare offerings from different banks and lenders. This can be done by visiting the various bank and lender websites, using online comparison tools like nesto’s comparison page, or consulting a mortgage expert directly.
Prime lenders (some of whom are A lenders) will often have the best rates to offer. However, you must meet the strict qualifying criteria of these lenders to obtain the best rates. Subprime lenders (B and private lenders) will often have higher rates when compared to prime lending. These lenders are typically better suited for those with more equity in the subject property, self-employed income, or needing help to meet the qualifying criteria of prime lending.
Private (also known as syndicate) lenders loan out money directly to the borrower as investors and set their own terms, conditions, and rates for the mortgage. Interest rates tend to be higher than prime and subprime lenders, but offer mortgages to those who require a non-income qualifying (NIQ) solution.
Remember that the lowest rates don’t always mean the best deal. Consider other features and benefits like prepayment options, porting privileges, and any restrictions that could see you incur a hefty penalty if you prepay or pay off your mortgage before the term ends.
Total Interest Paid on a $400k Mortgage
The total interest you’ll pay on a $400,000 mortgage over its lifetime can be considerable.
Using nesto’s current 5-year fixed rate of 5.39% and a 25-year amortization, you would pay approximately $101,123 in interest over a 5-year term. If you look at the full 25 years, assuming your interest rate never changes, that figure balloons to $324,804.
However, if you opt for a 30-year amortization to lower your monthly payments, you would pay approximately $102,730 in interest over the 5-year term and $402,364 over the entire 30 years, assuming your interest rate never changes.
How to Apply for a $400k Mortgage
The application process for a $400,000 mortgage with nesto typically involves the following steps:
- Prepare Documents: Gather all the necessary documents, including proof of income, bank statements, and identification.
- Find a mortgage lender or visit https://www.nesto.ca/online-mortgages-brand/
- Complete the application: don’t include an address for the property unless you have already located one – a prequalification can be obtained when the subject property is not confirmed. Include details from the MLS listing if you have found a property where your offer is accepted. A nesto sales development representative (SDR) may reach out to you at this point to help you with your application.
- Book a meeting: an expert at nesto will speak to you to understand your financial situation and match it to the most suitable mortgage solution for your needs. After meeting with an expert, a nesto processor will be assigned to help you fully complete or update any documentation needed to take your application to the finish line.
- Get approved – you’ll get firm or conditional approval of financing from nesto.
- Provide additional documentation – include anything missing, including your realtor and solicitor’s contact information. Your nesto processor will contact you to help you complete your mortgage application.
- Receive instructions – instructions are sent to your solicitor or notary.
- Pay outstanding costs – Your notary or solicitor will confirm any outstanding closing costs, including your downpayment, land transfer taxes, title insurance/search/survey/land transfer office fees, and legal fees.
- Sign on your mortgage – you’ll book an appointment to sign with your solicitor.
- Get keys to your new home – you’ll receive the keys to your new home on your closing date.
Frequently Asked Questions
What is the monthly mortgage payment on a $400,000 mortgage?
Monthly payments on a $400,000 mortgage will depend on the interest rate offered and your amortization period. For example, using principal and interest only, a $400k mortgage with a 5% interest rate and a 25-year amortization would have monthly payments of approximately $1,163.
If you put down less than 20% as a downpayment, you must also factor in mortgage default insurance. This insurance will be included in your mortgage payment, though you can avoid adding it to the mortgage by paying the amount upfront in full. You may also choose to include property taxes as part of your mortgage payment that the lender will collect and remit on your behalf.
What income do you need for a $400,000 mortgage in Canada?
The income required for a $400,000 mortgage will change based on how much current debt you carry, how much you have saved for a downpayment, and current interest rates.
The best way to determine the income you need is to calculate your debt-to-income ratios. The general rule of thumb is that you can afford 3 to 4x your income as a mortgage with a 20% downpayment.
Income Needed = (monthly payment + taxes/12 + $100 for heating + condo fees/2)*12/0.39*
Your stress-tested monthly payment is based on your contract rate +2% over 25 or 30 years.
The 0.39* factor is changed to 0.35 whenever you use 30 years for the amortization or have a 20% downpayment to contribute to your home purchase.
How can I find the best rate for a $400,000 mortgage?
To find the best rate for a $400,000 mortgage, compare offerings from different banks and lenders. You can do this by using comparison tools or consulting a mortgage expert. nesto makes it easy to compare mortgage rates in your province or territory.
Are there any hidden costs with a $400,000 mortgage?
There are no hidden costs with a $400,000 mortgage. However, additional costs besides your monthly mortgage and interest payment could easily be overlooked. Other monthly expenses to consider when budgeting include recurring expenses like property taxes, home insurance, and mortgage default insurance.
One-time costs you’ll need to consider may include home appraisal and inspection fees, land transfer taxes, moving expenses, and closing costs. It’s recommended that you set aside between 1.5% and 4% of the purchase price for closing costs, depending on the province in which the property is located.
Final Thoughts
Understanding the full impact of a $400,000 mortgage, not only what you expect as monthly costs but also how much interest you will pay over the life of the loan, can help you realize the full implications and costs of taking on a mortgage.
Contact nesto’s mortgage experts today for the best rates on your mortgage.
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in this series Mortgage Cost Guide
- Cost of a $500,000 Mortgage next read
- Cost of a $100,000 Mortgage next read
- Cost of a $900,000 Mortgage next read
- Cost of a Million Dollar Mortgage next read
- Cost of a $200,000 Mortgage next read
- Cost of a $300,000 Mortgage next read
Best Mortgage Rates
Fixed
Variable
in
0.00%3 Year Fixed
Get Rates0.00%5 Year Fixed
Get RatesCheck more rates
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