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Robert Harsha, CFP®
Financial Advisor
Yellowstone Financial Services
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The Cost of Borrowing

In April 2022, the average interest rate for a 30-year fixed mortgage surpassed 5% for the first time since April 2010, and it was still above 5% in August. With higher rates, it's more important than ever to understand how interest increases the total cost of a mortgage.

The chart below shows the total cost for a $400,000 conventional 30-year fixed mortgage and an accelerated 15-year fixed mortgage (typically used for refinancing) at different interest rates. A $400,000 mortgage would enable a buyer to purchase a $500,000 home with a 20% down payment.

Total of $400,000 principal and interest at various interest rates for 30-year fixed mortgage:  at 3%: $607,110; at 4% $687,478; at 5% $773,023; at 6% $863,353. Total of $400,000 principal and interest at various interest rates for 15-year fixed mortgage: at 3% $497,219; at 4% $532,575; at 5% $569,371; at 6% $607,577.

Source: Freddie Mac, 2022. This hypothetical example of mathematical principles is used for illustrative purposes only. Actual results will vary.