Mortgage Comparison - Present Value?

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Ichiroll
Posts: 5
Joined: Mon May 22, 2017 8:32 pm

Mortgage Comparison - Present Value?

Received a counter offer from seller asking for closing to occur within three weeks to coincide with closing for there new house.

Looking for validation that my logic is correct in comparing what certainly will be a higher rate and closing costs with a local lender. Does it make sense to compare the present value of monthly payments on the mortgage I was going to lock vs local mortgage, e.g. \$190k loan, 3.75% vs guessing 4% over 30 years? So fair to ask \$5k reduction in price <math check> I imagine closing cost will be \$1-2k higher.

I think we have good leverage here because unless they get another offer in the next few days, only a cash buyer could meet the deadline.

whodidntante
Posts: 4034
Joined: Thu Jan 21, 2016 11:11 pm

Re: Mortgage Comparison - Present Value?

I think that's a reasonable way to compare the two situations, but also will go over the head of most people. If you think you have leverage go ahead and counter what you think is fair.

#Cruncher
Posts: 2669
Joined: Fri May 14, 2010 2:33 am
Location: New York City
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Re: Mortgage Comparison - Present Value?

whodidntante wrote:
Sat Oct 07, 2017 3:36 pm
... reasonable ... but also will go over the head of most people.
Maybe they'll understand if you explain it this way:
• With the later closing I can get a loan at 3.75% which results in a \$879.92 monthly payment for 30 years:

Code: Select all

``879.92 = PMT(3.75% / 12, 360, -190000, 0, 0)``
• But if we move the closing to an earlier date as you request, I'll probably have to pay 4% for a 30 year loan.
• To pay that loan off with the same \$879.92 monthly payment, the loan amount would have to be reduced \$5,691 to \$184,309.

Code: Select all

``184,309 = PV(4% / 12, 360, -879.92, 0, 0)``
(I used the Excel PMT and PV functions and confirmed with the Bankrate.com Mortgage Calculator.)

ResearchMed
Posts: 7170
Joined: Fri Dec 26, 2008 11:25 pm

Re: Mortgage Comparison - Present Value?

#Cruncher wrote:
Sat Oct 07, 2017 4:59 pm
whodidntante wrote:
Sat Oct 07, 2017 3:36 pm
... reasonable ... but also will go over the head of most people.
Maybe they'll understand if you explain it this way:
• With the later closing I can get a loan at 3.75% which results in a \$879.92 monthly payment for 30 years:

Code: Select all

``879.92 = PMT(3.75% / 12, 360, -190000, 0, 0)``
• But if we move the closing to an earlier date as you request, I'll probably have to pay 4% for a 30 year loan.
• To pay that loan off with the same \$879.92 monthly payment, the loan amount would have to be reduced \$5,691 to \$184,309.

Code: Select all

``184,309 = PV(4% / 12, 360, -879.92, 0, 0)``
(I used the Excel PMT and PV functions and confirmed with the Bankrate.com Mortgage Calculator.)
But OP would be paying that slightly higher mortgage in small monthly increments in the future.
Seller is being asked to pay the entire amount "now".
There should be some discount for the extra cost, most of which is far in the future.

RM
This signature is a placebo. You are in the control group.

Ichiroll
Posts: 5
Joined: Mon May 22, 2017 8:32 pm

Re: Mortgage Comparison - Present Value?

#Cruncher wrote:
Sat Oct 07, 2017 4:59 pm
Maybe they'll understand if you explain it this way:
With the later closing I can get a loan at 3.75% which results in a \$879.92 monthly payment for 30 years:
CODE: SELECT ALL
879.92 = PMT(3.75% / 12, 360, -190000, 0, 0)
But if we move the closing to an earlier date as you request, I'll probably have to pay 4% for a 30 year loan.
To pay that loan off with the same \$879.92 monthly payment, the loan amount would have to be reduced \$5,691 to \$184,309.
CODE: SELECT ALL
184,309 = PV(4% / 12, 360, -879.92, 0, 0)
(I used the Excel PMT and PV functions and confirmed with the Bankrate.com Mortgage Calculator.)
Much appreciated. I got to roughly the same conclusion using a different method.

I suspect the seller can comprehend to some degree limiting my mortgage shopping comes at a cost. If not then I guess I move on and they don't have there house closed prior to closing on a purchase which seems to be a concern.