Author Topic: 30 yr Fixed: Lower rate or higher lender credit?  (Read 3323 times)

Easye418

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30 yr Fixed: Lower rate or higher lender credit?
« on: April 04, 2016, 07:04:38 PM »
What is the general rule of thumb when it comes to 30 year fixed on taking the lowest rate vs taking the highest lender credit?

My lender said she could offer me 3.875%, 30 year fixed with $4,000 lender credit.  She is going to get back to me, but I assume she can offer me a 3.625% with no lender credit or slight lender credit.

Thanks!

boarder42

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #1 on: April 04, 2016, 07:21:09 PM »
just do the math.  figure out what the payoff time is ... you're looking at a quarter point difference.   how much is the loan for bc that is pretty key

Easye418

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #2 on: April 04, 2016, 07:26:56 PM »
just do the math.  figure out what the payoff time is ... you're looking at a quarter point difference.   how much is the loan for bc that is pretty key

Somewhere between $300k-$313k. Hope to stay here for at least a decade.

boarder42

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #3 on: April 04, 2016, 07:35:24 PM »
on a 300k loan if we assume you just spend the 4k and dont invest it it takes approx. 7.8 years for the break even point. 

but if we were to invest the 4k its worth 30.5k at the end of 30 years. or 6.8k at the end of 7.8 years 7.8k at the end of 10 years at 7% ROI

and then if we were to invest the difference in loan with the lower rate.  its worth 51.5k at the end of 30 years or 5,418 at the end of 7.8 and 7.5k at the end of 10years same assumed return

over a 10 year window its basically a wash.  if you're not maxing your tax advantaged accounts and this allows you to do that i take the cash.  you can always refi in the future if rates stay low. 

Easye418

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #4 on: April 04, 2016, 08:35:05 PM »
on a 300k loan if we assume you just spend the 4k and dont invest it it takes approx. 7.8 years for the break even point. 

but if we were to invest the 4k its worth 30.5k at the end of 30 years. or 6.8k at the end of 7.8 years 7.8k at the end of 10 years at 7% ROI

and then if we were to invest the difference in loan with the lower rate.  its worth 51.5k at the end of 30 years or 5,418 at the end of 7.8 and 7.5k at the end of 10years same assumed return

over a 10 year window its basically a wash.  if you're not maxing your tax advantaged accounts and this allows you to do that i take the cash.  you can always refi in the future if rates stay low.

I could do
3.6275% with $1,000
3.75% with $3,500
3.875% with $5,000

Leaning towards the middle option to get best of both worlds. Since we are paying seller's title, I'll end up paying $2,000 to close. I can live with that.

Thank you!

boarder42

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #5 on: April 05, 2016, 05:36:21 AM »
still just do the math.  its really easy. 

Jack

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #6 on: April 05, 2016, 06:20:09 AM »
The real issue is that the different options have different break-even points (the more points you pay to get a lower rate, the longer the break-even), so your decision almost entirely depends on how long you plan to keep the mortgage.

For example, I recently refinanced too. I plan to keep my house indefinitely (even if I move, I'll keep it as a rental) and I don't expect rates to continue to get lower causing another refi to be unlikely, so I decided it was worthwhile to pay down the interest rate.

You say you hope to stay for at least a decade, and if you actually do that then paying down the rate might be worth it. But you have to ask yourself honestly how likely it really is that you will neither sell or refinance before break-even. On average, most people move within 7 years, so on average, it tends not to be worth paying down the rate. Are you the exception?

Easye418

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #7 on: April 05, 2016, 09:50:20 AM »
The real issue is that the different options have different break-even points (the more points you pay to get a lower rate, the longer the break-even), so your decision almost entirely depends on how long you plan to keep the mortgage.

For example, I recently refinanced too. I plan to keep my house indefinitely (even if I move, I'll keep it as a rental) and I don't expect rates to continue to get lower causing another refi to be unlikely, so I decided it was worthwhile to pay down the interest rate.

You say you hope to stay for at least a decade, and if you actually do that then paying down the rate might be worth it. But you have to ask yourself honestly how likely it really is that you will neither sell or refinance before break-even. On average, most people move within 7 years, so on average, it tends not to be worth paying down the rate. Are you the exception?


True, I plan on staying there longer than a decade.  I think I am splitting hairs.

still just do the math.  its really easy.

I'll do the math. 

boarder42

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #8 on: April 05, 2016, 09:52:30 AM »
The real issue is that the different options have different break-even points (the more points you pay to get a lower rate, the longer the break-even), so your decision almost entirely depends on how long you plan to keep the mortgage.

For example, I recently refinanced too. I plan to keep my house indefinitely (even if I move, I'll keep it as a rental) and I don't expect rates to continue to get lower causing another refi to be unlikely, so I decided it was worthwhile to pay down the interest rate.

You say you hope to stay for at least a decade, and if you actually do that then paying down the rate might be worth it. But you have to ask yourself honestly how likely it really is that you will neither sell or refinance before break-even. On average, most people move within 7 years, so on average, it tends not to be worth paying down the rate. Are you the exception?


True, I plan on staying there longer than a decade.  I think I am splitting hairs.

still just do the math.  its really easy.

I'll do the math.

you're slightly splitting hairs but from the looks of it the 3500 is a really good deal to sell them back an eigth point. 

boarder42

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Re: 30 yr Fixed: Lower rate or higher lender credit?
« Reply #9 on: April 05, 2016, 09:55:04 AM »
its over a 13 year payoff time if you just spent the 3500.  and took the 3.75%.  also my broker is at 3.5% right now on REFI's in MO so i would bet you could get a new loan for something around 3.375 possibly