Rate lock at 3.85% or 4.125%?

[Cwadda]

I'm buying a property with 3.5% down, the mortgage amount is $343k. My loan officer called today and said I can either rate lock at 3.85% and $3,900 more would be due at closing. Or I can lock in at 4.125% and I'd need $3,900 less at closing.

Any suggestions?

[waltworks]

How long will you have the house?

The P&I per month (assuming a 30 year loan) is $1662 (4.125%) or $1608 (3.85%). $54/month. You'll break even in 6 years or so.

-W

[Cwadda]

It's a long-term investment property. I'm considering just keeping the cash and doing an streamlined refinance with the FHA loan, if possible down the road.

[Cwadda]

4.125% rate chosen, it's being paid with tenant's money and will take roughly 6.5 years to recoup. Thanks W!

[waltworks]

That is a great rate for non owner occupied. Nice work!

-W

[Cwadda]

That is a great rate for non owner occupied. Nice work!

-W

It IS owner occupied but only 1 of the 4 units will be owner-occupied, of course!

[runewell]

4.125% rate chosen, it's being paid with tenant's money and will take roughly 6.5 years to recoup. Thanks W!

Nonsense, YOU will end up paying for the difference.  It's not like the tenant recognizes the interest difference and voluntarily decides to pay more.

[Cwadda]

4.125% rate chosen, it's being paid with tenant's money and will take roughly 6.5 years to recoup. Thanks W!

Nonsense, YOU will end up paying for the difference.  It's not like the tenant recognizes the interest difference and voluntarily decides to pay more.

I understand. What I was saying is for cashflow purposes, it makes sense to take a $50/month reduction for 6.5 years in order to save short-term cash.

[MaikoTsumi]

$3900 is not a big deal, but as an investor, I try to hold onto cash when I can.  More cash means more deals and more deals sooner.  Your next deal will likely need the full 20-25% down, if you continue down the REI path. 

[Cwadda]

$3900 is not a big deal, but as an investor, I try to hold onto cash when I can.  More cash means more deals and more deals sooner.  Your next deal will likely need the full 20-25% down, if you continue down the REI path.

Yep, I did exactly like you mentioned. I'm going to hold on to cash as much as possible especially because I'm not a high earner.

[CptJack83]

Shop around more on the mortgage.  I'm assuming you are going FHA with a 3.5% DP multi-family.  You can do better than that. How much is the loan size? 

Take the extra cash at closing  Most people over estimate how long they will carry a mortgage.  Even if rates go up in the next few years they can always come down again and there will be opportunities to refinance.

The banks offer those options because in the end (at least based on a large basket of loans) the math all evens out on average.