Help me choose my loan option?

[isaakthepirate]

Hi Mustache Community,

Would love your help. I need to make a choice on a loan by tomorrow and am curious to get some input from a community I respect and appreciate (that's you).

Basically, I can either get a credit or pay for a lower interest rate. I know on MMM we think long term and get the lower interest rate, however it would take me 9.3 years to zero out of the benefits of the higher interest. This is for an income property (three units) so I expect to keep this property for longer than 9 years...but I don't know if that's a gaurantee. I'm in my 20s, so a lot could change for me in 10 years.
Any wisdom here? My instinct is to suck it up and pay the point, keep my eye on the long haul, but I'd love to hear others' ideas.

Thanks in advance!

Here's my options:

4.625% 1.156% lender credit, or $5098   payment= $2267
4.500% .322% lender credit, or $1420      payment= $2234
4.375% .669 points, or $2950 (cost)          payment= $2202
4.250% 1.344 points, or $5927 (cost)        payment= $2169

Difference between the 4.25 and 4.65% = 11,025
Time to zero out: 9.375 years
Saved to complete 21 year mortgage: $24,696
(Alternately: 11,025 invested with 4% return=17,959 in 10 years)

Total loan amounts:
A Total: 811,022
B Total: 802,820
C Total: 795,670
D Total: 786,767

[Mori]

How much difference do these payments make on your monthly surplus?

Also: Type of loan? 10 year balloon? 30 year? Not sure if you had to take a commercial loan or something else.

[isaakthepirate]

30 year fixed.
Thanks,
Isaak

[Poorman]

Hi Mustache Community,

Would love your help. I need to make a choice on a loan by tomorrow and am curious to get some input from a community I respect and appreciate (that's you).

Basically, I can either get a credit or pay for a lower interest rate. I know on MMM we think long term and get the lower interest rate, however it would take me 9.3 years to zero out of the benefits of the higher interest. This is for an income property (three units) so I expect to keep this property for longer than 9 years...but I don't know if that's a gaurantee. I'm in my 20s, so a lot could change for me in 10 years.
Any wisdom here? My instinct is to suck it up and pay the point, keep my eye on the long haul, but I'd love to hear others' ideas.

Thanks in advance!

Here's my options:

4.625% 1.156% lender credit, or $5098   payment= $2267
4.500% .322% lender credit, or $1420      payment= $2234
4.375% .669 points, or $2950 (cost)          payment= $2202
4.250% 1.344 points, or $5927 (cost)        payment= $2169

Difference between the 4.25 and 4.65% = 11,025
Time to zero out: 9.375 years
Saved to complete 21 year mortgage: $24,696
(Alternately: 11,025 invested with 4% return=17,959 in 10 years)

Total loan amounts:
A Total: 811,022
B Total: 802,820
C Total: 795,670
D Total: 786,767

Using your assumption of a 4% return on the 11,025 savings, your time to zero out actually exceeds the term of your mortgage (21 years).  Your statement that it would take 9.375 years to zero out is based on a 0% return on the 11,025 in savings.  Personally, I would take the higher interest rate and invest the 11,025 difference, but that's assuming your property cashflows at the higher rate and that you don't have the goal of paying the property off early.

[Another Reader]

I costs you 2.5 points to drop 3/8 of a percent in rate.  That seems high to me.  Also, it's not even.  The last 1/8 percent drop is the cheapest.

Are you really reducing your loan amount or are the credits going to closing costs?

[isaakthepirate]

Credits go to closing costs, not to loan.
Thanks for the advice, all. It seems like for a few different reasons the higher percentage is smarter (against my initial instinct).