CONTRIBUTING FACTORS

The type of home you can afford to buy is directly influenced by the interest rate you'll be paying on your mortgage. For example, if rates are low and you're paying 6%, you could borrow $200,000 for 30 years and repay $1,199 a month. But if rates were 10%, as they have been in some years, it would cost almost that much — $1,097 — to borrow just $125,000 for 30 years.

To find out how much you'll be able to borrow at current interest rates, you can use a loan and mortgage calculator. They're available online at many lending sites. Or you can buy a loan and mortgage payment table that lists the monthly mortgage payments for different loan amounts at various rates over a number of different terms. They're available in most bookstores.

The Cost of a Mortgage

The cost of a mortgage depends on the amount you borrow, the interest you pay, and how long you take to repay.


Since monthly payments spread the cost of a mortgage over a long period of time, it's easy to forget the total expense. For example, if you borrow $100,000 for 30 years at 6.5% interest, your total repayment will be around $227,545, more than two and a quarter times the original loan.
Minor differences in the interest rate — 6.5% vs. 6% — can add up to a lot of money over 30 years. At 6% the total repaid would be $215,842 about $11,703 less than at the 6.5% rate. Of course, many borrowers refinance or sell before the end of the loan term, so the differences between the rates are less dramatic.