Which mortgage option would you choose?

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Topic Author
hotrodz
Posts: 39
Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Which mortgage option would you choose?

Post by hotrodz »

After shopping around for the last few weeks these are the 2 best options for my 30y fixed, no cash-out refinance:

a) 2.375% rate with ~$1500 in cost
b) 2.500% rate with zero cost

Difference in monthly payment for 0.125% is $32.

I think they're both great options considering I currently have a 3.25% 10/1 ARM. I figure it will take somewhere between 4 and 5 years for the lower rate to pass the higher one in savings assuming I invest that money. No plans to move, house is bigger than we'll probably ever need.

Thank you!
quantAndHold
Posts: 6116
Joined: Thu Sep 17, 2015 10:39 pm

Re: Which mortgage option would you choose?

Post by quantAndHold »

I don’t have a spreadsheet open on my phone, but it’s a simple time value of money calculation to find the breakeven point, which appears to be somewhere around 3 1/2 4 years. If you’re going to keep the loan longer than that, it’s a better idea to pay the point.
Yes, I’m really that pedantic.
presto987
Posts: 468
Joined: Sun Aug 30, 2020 10:58 pm

Re: Which mortgage option would you choose?

Post by presto987 »

Both are great options. I try to avoid upfront costs, because those become sunk costs if you refi again or sell the house. But if you don't intend to refi again and expect to be in the house for a while, it's fine to go with the 2.375% option.
Doctor Rhythm
Posts: 995
Joined: Mon Jan 22, 2018 3:55 am

Re: Which mortgage option would you choose?

Post by Doctor Rhythm »

Is that $1500 an actual fee (eg, appraisal, documents, etc) or a the result of paying a point?
NabSh
Posts: 194
Joined: Fri Dec 25, 2020 12:09 pm
Location: USA

Re: Which mortgage option would you choose?

Post by NabSh »

How long do you intend to stay in the house ? In general if the payback period is more than a couple of year you want to go with a lower initial cost option.
Topic Author
hotrodz
Posts: 39
Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Re: Which mortgage option would you choose?

Post by hotrodz »

Thanks for the replies, leaning towards the 2.375%.

The cost is not a point, it's some of the closing costs that are not covered by lender credit (origination, title, etc).
No plans to move so I think a minimum of 4-5 years is safe, would also not be a big money loss if we end up moving before that.
DidItMyWay
Posts: 204
Joined: Sun Feb 13, 2011 5:19 pm

Re: Which mortgage option would you choose?

Post by DidItMyWay »

Yes, if you plan to stay in the house for at least the next 4 years, I would go for the 2.375%.
Great rate.
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