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Ask the Expert: Translating Mortgage Rates Into Monthly Payments

May 31, 2010

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: If I buy a house in Maine for $320,000 with a 7% interest rate for 30 years, what will my monthly payment be? What about at 8% interest for 15 years?

A: To start with direct answers to your questions, a $320,000 mortgage at 7% over 30 years would yield a monthly payment of $2,128.97. A $320,000 mortgage at 8% over 15 years would yield a monthly payment of $3,058.09.

There are plenty of mortgage calculators online where you can test various mortgage payment scenarios. Before you start doing that, however, you might want to do some research into mortgage rates. Unless your credit score is fair or poor, you should be able to do much better than a 7% or 8% mortgage right now. Average 30-year mortgage rates recently dipped back below 5%, and 15-year mortgage rates are even lower.

There are a couple of other things to think about in your planning. First of all, having a down payment of 10% to 20% will go a long way to helping you qualify for a lower mortgage rate. If you are planning on buying a $320,000 house, the good news is that a significant down payment would reduce your mortgage amount and thus make your monthly payments more affordable. The bad news is that you'd have to come up with that 10% to 20% upfront.

Use a savings vehicle like a money market account to accumulate your down payment -- money market rates are generally higher than savings account rates, and while longer-term CD rates might be even higher, CDs don't give you the flexibility you'd need to accumulate your down payment over time.

If you can't come up with a large down payment for a conventional loan, talk to an FHA-approved lender about FHA loans. You'll pay mortgage insurance, but you can qualify with as little as 3.5% down.

Also, when figuring monthly payments for budgeting purposes, don't forget to figure in the cost of insurance and real estate taxes, because these will be a significant new expenses you'll encounter as a homeowner.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the bottom-left.

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