mortgage rate / loan fee options

[bokonon]

My bank is offering me two choices for rates and fees on my 30 year 295,000 mortgage:

Option A:
3.625%, $1,906 in fees.  Principal plus interest payment is: $1,346

Option B:
3.75%, $0 in fees.  Principal plus interest payment is: $1,367

I will likely keep this loan for a long time as the rates are so low.  Not quite 30 years because I need to pay a little extra the first 2 years to be able to drop PMI so maybe 25 years.  I have the cash available to pay the loan fees in option A without any struggle.

I know this is probably a very simple math question but I don't know how to do it. Both options seem very good to me, so which would you choose?

Thank you!

[dandarc]

0.125% of $295K is $368.75 - that's about how much you save in year 1.

I get a break-even on $1906 in 5.16 years - in reality it will be a bit longer than that, because you're planning on pre-paying to lift the PMI, and your balance would go down anyway, so year 2-5 interest won't be as much as year 1.  So will you be living in this house / paying this loan for 6 years or longer?  If so, pay the points.  If not or you're not too sure, take the 0 fee loan.

[bokonon]

Thanks Dandarc!  We love the house and think we'll be there long term so I'm going to go with the lower rate.  I *hate* monthly payments so I'm happy to slice $21 off the mortgage :).

[SnackDog]

It depends on what you would do with the $1906 if you didn't use it to pay down the loan. If you keep it in your 2% interest savings account, the points will pay off in 68 months.  If you expect better return on your savings than 2%, you'll need to live in the house longer.  It's worth looking at all the point options available at your preferred lender(s) to see what makes the most sense for your forecast needs.

That reminds me, I should check what points I paid on my mortgage and see if it paid off yet!

[Drifterrider]

I would ask for a description of what "fees" they mean.

I had one bank quote me "fees" which included the appraisal cost.  I had another one omit the appraisal in their list of "fees' (which I'd have to pay anyway to refinance).

I'd want to know the make up.