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  1. [...] also quoting rates that are as close to "par pricing" as possible. This means with as little rebate credit or discount points possible. If you would like to have your rate lower, you can pay discount points to reduce the [...]

  2. [...] rate is to compare the rate to the net cost.  When I'm pricing a mortgage rate, it either has discount points, which buys the rate lower OR it has rebate credit reducing closing cost, which is caused by having a slightly higher mortgage rate. Here are a few [...]

  3. Patrick Hall
    Nov 21 - 11:14 am

    Rhonda, thanks for the article. When I ask about deciding between the two options, I’m often left with the answer “it’s really up to what you want to do”.

    Is there a definite mathematical savings going one way or another when paying a loan off in 15 or 30 years?

    I have enough money to pay any of the closing costs associate with each interest rate….but which one saves you the most money long term?

    I keep telling myself it’s wiser to take the 3.125% loan now and pay the extra $6000 in closing costs but for the life of me I can’t figure out the real math.

    The counter argument would be that with a $6000 up front savings (different between a 3.125 and 3.7 rate), that money could be spent on improvements need on the house now or invested in the market which historically would yield gains much greater than the increased price paid on the loan itself over 15 or 30 years.

    Any thoughts on this topic? My broker suggests I go with something in the middle around 3.5% but part of me thinks that’s because his firm makes more money on the loan with a higher interest rate. Would I be dumb taking anything higher than the lowest rate I can get (especially considering I’ll never be able to refinance with an initial rate this low)?

    • Rhonda Porter
      Nov 21 - 11:26 am

      Hi Patrick,
      First of all, your broker should not have his compensation impacted by the rate you select per regulations passed by the Fed in April of last year (aka LO Comp).

      It is personal choice. You do have savings if you no longer have a mortgage payment – you’ll lose the ability to deduct mortgage interest (assuming that still exists in the future).

      For me, I tend to lean towards a 30 year fixed because it does provide flexibility with your mortgage payment – you can always pay down principal or stash away the funds you would be using towards a 15 year to build up savings. Then you’ll always have the funds to pay off or pay down the mortgage should you decide to.

      If you opt for 15 year and need cash out in the future, you’ll need to qualify for a cash-out refi ….which also comes with closing cost.

      As far as whether or not you should pay to reduce your rate – that’s also a personal call (forgive me). Has your mortgage originator provided you with amortization schedules based on the rates he or she is quoting? This may help you decide based on break even points.

      Good luck!

      • Patrick Hall
        Nov 21 - 11:41 am

        Hmmmm good things to think about. I’m definitely not thinking of a 15 year vs a 30 but rather would try to pay off the whole loan within 15. That would be the most flexible for me but considering I’m single and have a lot of flexible income coming in at the moment it seems wise to pay it all off.

        Also half of the square footage of this house is contained in a separate detached building which I can use as a my home office….which would make a lot of my mortgage deductible if the mortgage interest deduction ever was scraped off the books.

        Lots to consider but it doesn’t sound like there is a clear right or wrong answer which means the liability can’t be that great….maybe the difference of $20,000-$40,000 over the course of 30 years.

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