BrandonBogle wrote: ↑Mon Sep 14, 2020 6:53 pm
Keep in mind folks to also consider the various rate options a lender offers to you, as getting the lowest no-cost rate isn’t always the best option.

For instance, in my current refi, I have rate options all the way down to 1.875%. If I pick the 2.125%, all my closing costs would be covered and then some, or at 2% I would have $500 in closing costs after everything.

So which option am I choosing? 2.75%. That option comes with earning $3,650. Doing the math of total interest saved vs. money I get up front from taking the higher rate, everything up to 2.75% took me 9 years to get ahead by choosing the lower rate. Considering I’m doing a 15-year loan, it just isn’t worth taking the lower rate.

Now, this is my situation. Yours may vary.

So I have a question about this.

I am now working on my refi #2 after doing initial refi #1 30 year fixed with better.com at 2.5% with $1300 principal reduction (no cash back at closing due to state restrictions on this) and $2,500 AmEx credit.

For refi #2, my options are basically either a loan for 2.375% with $0 costs (this is lots of price matching later so please don't ask "which lender" as it doesn't really apply here and anyway you can tell by reading my prior posts) or 2.25% with $2k rolled into my loan.

I'm favoring 2.25% as is as basically I just had a $1300 principal reduction and will get $2,500 AmEx credit, so I'm still coming out positive after rolling extra $2k into refi #2.

However, even if I make an amortization table of the two loans, I come up with total interest on 2.375% loan as $113.6k and total interest on 2.25% loan as $107.8k. So difference of ~$5.8k over 30 years in interest paid. Given the extra $2k in principal, that still makes interest paid over 30 years ~$3.8k less for the 2.25% loan. Further, I'm no longer planning on pre-paying the loan at all as I plan to arbitrage with my 3% guaranteed unrestricted TIAA traditional.

In any case, I fail to see how I come out worse ahead by choosing the 2.25% rate loan in this situation, but I'm happy to find flaws in my calculations.

And yes, I do realize that rates can drop again and I might be able to refi to 2.25% without paying any closing costs, but I'm trying to see where in the amortization cost comparison I'm missing the disadvantage of increasing my loan balance by $2k to go from 2.375% -> 2.25%.

Thanks!

EDIT: Fixed numbers slightly as I was playing with my spreadsheet and forget to revert to correct specifications. And I do plan on staying in this house for 30 years, although I do realize if I am forced to sell for some reason, I will obviously realize the $2k difference immediately.