Mortgage Comparison - Present Value?

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Ichiroll
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Mortgage Comparison - Present Value?

Post by Ichiroll » Sat Oct 07, 2017 3:32 pm

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.

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whodidntante
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Re: Mortgage Comparison - Present Value?

Post by whodidntante » Sat Oct 07, 2017 3:36 pm

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.

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#Cruncher
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Re: Mortgage Comparison - Present Value?

Post by #Cruncher » 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.)

ResearchMed
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Re: Mortgage Comparison - Present Value?

Post by ResearchMed » Sat Oct 07, 2017 5:09 pm

#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
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Ichiroll
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Re: Mortgage Comparison - Present Value?

Post by Ichiroll » Sat Oct 07, 2017 7:47 pm

#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.

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