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We are in the process of buying a new home and selling our current home. We have found a home we love and our current one is on the market. Our mortgage broker had previously offered us a mortgage at 3.875%. This works for us and the monthly payment is affordable for us, but I told him I needed to think about it and shop around. I did shop around and determined that this was our best offer at this time. Well, while I was thinking about it, he called me again today and said that since we had last spoken, interest rates had improved slightly and that he could now offer me a mortgage at 3.75% OR keep the 3.875% and get a lender credit of $2000 for closing costs. The difference in payment would equal about $17/month. Which would take us about 10 years to recoup the $2000. So I was thinking of taking the 3.875% and $2000 just to keep some more cash in our pockets right now since buying a new home is an unknown. Can anyone tell me another perspective? I'm just trying to make sure that I make the best decision
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You also want to look at the total interest you'll pay over the life of the loan. For example, with a $235,000 30-year mortgage at 3.875% you'll pay a total of $162,820.57 in interest. At 3.75% you'll pay $156,795.79 in interest, which of course saves you way more than the $2,000. (And if you take the $17 difference and pay it monthly to the lower-rate loan, your total interest paid drops to $151,787.88 -- almost $11,000 less over the life of the loan.)
Of course that will vary if you plan on pre-paying the mortgage, or if you're looking at a different term, etc. You can play with a mortgage calculator -- I use BankRate's -- to see what difference the lower rate, prepayments, etc. would make.
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I'd check zillow or trulia quick just to make sure there aren't any stellar online offers first but if I were you I'd take the 2k in costs over the 17/mo reduction.Comment
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