Which rate should I go with?
30YR fixed 3.5 with $1200 closing costs 3.625 with $0 closing costs3.75 with -$750 creditThe difference between each rate is around $15 a month (so 3.625 would be $15 more than 3.5 and 3.75 would $30 more a month than 3.5).If I go with the 3.75 the credit would even cover the prepaid interest which would be a real no cost loan. I'm leaning towards 3.75 since the break even point on the 3.625 is like 4.5 years and between 3.625 and 3.5 it's like 8 years.Any suggestions? by rogerb from Temecula, California. Aug 22nd 2012
William J Acres (William_Acres)
#74 ranked lender in Arizona - 8,728 contributions
Your question makes no sense.. Most lenders have a guideline that considers the "Net Tangible Benefit" to the borrower... meaning your loan costs would have to be paid back within 48 months or less for them to consider doing a "rate and term" refinance.. if your taking cash out, then it doesn't matter so long as your within the Loan to Value guidelines.. Fha requires that your payment be reduced by at least 5% of your current payment to allow a refinance transaction.. so if you're starting rate is not 3.625 as you stated, but more like 5% or 6%, and the "Additional" savings for the rates your describing above net you $15 per every 1/8th of a percentage point, then you always go with the lowest to no cost loan, and take the higher rate.. That way your savings start from day one.. Not 80 payments down the road.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com
Bert Carpenter (BertCarpenter)
#37 ranked lender in Arizona - 2,431 contributions
In a way you answered your own question. If you think you will be in the home more than 80 months and you have the $1,200 to pay the costs (or can roll them into the new loan), then take the lowest rate. Each month beyond 80 puts more cash in your pocket. If you don't think you will be in the loan that long, then take the higher rate and save the $1,200. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ www.LoansA2z.com ~ 888-889-9950
The answer to that is different for different people depending on your goals but in general, if you plan on keeping the loan/property for at least the breakeven period it usually makes mathematical sense to get the lowest rate possible since that scenario will pay off the most in the long run. Having said that, everyone's priorities are different so it's not always about the math.
Michelle Curtis Loan Originator NMLS 401173 (MichelleCurtisLO)
#77 ranked lender in Florida - 2,245 contributions
Roger, the answer Larry gave you is correct. You are doing the math wrong. If you plan on staying in your house for many years I would go with the lowest rate period.
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