Mortgage Comparison (Builder's Credit)

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drizzleray
Posts: 2
Joined: Mon Oct 15, 2018 3:48 pm

Mortgage Comparison (Builder's Credit)

Post by drizzleray » Mon Oct 15, 2018 4:41 pm

Long time lurker, first time poster. This forum has been invaluable in my education, so please allow we to pick y'all's brains.

My new wife & I are about to purchase my first house, and we've been shopping lenders. I've been using the Mortgage Professor calculators (which have been down today, :oops: ) and wanted to make sure I'm not missing something. I'm comparing two 30-year fixed loans, one from AimLoan (which I saw previous posters have had success with) and the other with the builder's associated lender.

The builder's lender came in with a much higher rate, 5.25%, but offers $8,000 towards closing costs as a seller incentive. AimLoan is currently offering 4.625% and has lower fees by about $1,300, so the upfront savings is about $6,700.

If my calculations are right, the break-even point is about 4 years. This house was bought with consideration of future kids & schools, so it should be a long-term purchase (unless life has other plans!), which has me leaning towards AimLoan. Is it simply personal preference on whether to go with the upfront savings or long-term? Is there another option I'm not considering?

jbmitt
Posts: 330
Joined: Mon Jul 14, 2008 1:00 am

Re: Mortgage Comparison (Builder's Credit)

Post by jbmitt » Mon Oct 15, 2018 5:07 pm

It seems to me that you are trading money now ($8k in closing costs) for a higher interest rate for the duration of the loan. I’d ask yourself if you can afford the house, or if you are would be stretching it only because of the closing costs?

I wouldn’t make a decision until you can see for yourself the total cost for the period of the mortgage. It depends based on the purchase price.

Personally, I’d take the lower rate and I’d shop around until I found something I like.

delamer
Posts: 6268
Joined: Tue Feb 08, 2011 6:13 pm

Re: Mortgage Comparison (Builder's Credit)

Post by delamer » Mon Oct 15, 2018 5:42 pm

Just to be clear, the breakeven point means that as long as you keep the loan for 4 years, the lower rate loan is the better deal?

If so, then the likely length of the loan seems to be your decision point.

drizzleray
Posts: 2
Joined: Mon Oct 15, 2018 3:48 pm

Re: Mortgage Comparison (Builder's Credit)

Post by drizzleray » Mon Oct 15, 2018 6:13 pm

jbmitt wrote:
Mon Oct 15, 2018 5:07 pm
It seems to me that you are trading money now ($8k in closing costs) for a higher interest rate for the duration of the loan. I’d ask yourself if you can afford the house, or if you are would be stretching it only because of the closing costs?

I wouldn’t make a decision until you can see for yourself the total cost for the period of the mortgage. It depends based on the purchase price.

Personally, I’d take the lower rate and I’d shop around until I found something I like.
1. Correct
2. Home affordability isn't an issue, nor is having the cash to close in either situation without dipping into the EF. I'm just trying to get the most beneficial financing.
delamer wrote:
Mon Oct 15, 2018 5:42 pm
Just to be clear, the breakeven point means that as long as you keep the loan for 4 years, the lower rate loan is the better deal?

If so, then the likely length of the loan seems to be your decision point.
Yes, which is why I'm leaning towards AimLoan, but wanted to make sure I wasn't missing anything.

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