Posted on: 27th Aug, 2009 07:29 am
Mortgage lender showed me two sets of numbers. One had discount points of .750% and the other for .125%. The interest rates are 5% and 5.250%. This is an FHA loan for $397k. I calculated that it would take me 3.4 years to break even.
I'm only planning to live in this home for about 6 years since I want to move to a better school district once I have kids. I could sell it in 6 years or rent it out.
If I decide to rent out the home when I move, I could save $60 a month on mortgage, which would be $20k in 30 years. But If I sell it, I would have saved about $2000 over 6 years.
With that said, should I go with the higher interest rate so that I can save $2350 in closing costs right now? Or should I go with lower interest rate and save $20k in 30 years? I'm leaning towards higher interest rate since $2350 right now seems greater than $20k in 30 years. Let me know if my calculations are wrong.
I'm only planning to live in this home for about 6 years since I want to move to a better school district once I have kids. I could sell it in 6 years or rent it out.
If I decide to rent out the home when I move, I could save $60 a month on mortgage, which would be $20k in 30 years. But If I sell it, I would have saved about $2000 over 6 years.
With that said, should I go with the higher interest rate so that I can save $2350 in closing costs right now? Or should I go with lower interest rate and save $20k in 30 years? I'm leaning towards higher interest rate since $2350 right now seems greater than $20k in 30 years. Let me know if my calculations are wrong.
SD,
welcome to the forum.
you should go ahead with buying out option. as your break even is only 3.4 yrs
welcome to the forum.
you should go ahead with buying out option. as your break even is only 3.4 yrs
Which option is the "buying out option." This banking lingo is difficult!
There is some question about what you will do with the property in the future--sell it or rent it out.
If the break even on the costs is covered by the time you plan to live in the house, it seems resaonable to take the lower rate--you've lost no money and cover greater savings for the future--win win.
The points are tax dedctible, so, the true cost of the points is the after tax cost. You may be breaking even faster than you think.
If the break even on the costs is covered by the time you plan to live in the house, it seems resaonable to take the lower rate--you've lost no money and cover greater savings for the future--win win.
The points are tax dedctible, so, the true cost of the points is the after tax cost. You may be breaking even faster than you think.
There is some question about what you will do with the property in the future--sell it or rent it out.
If the break even on the costs is covered by the time you plan to live in the house, it seems resaonable to take the lower rate--you've lost no money and cover greater savings for the future--win win.
The points are tax dedctible, so, the true cost of the points is the after tax cost. You may be breaking even faster than you think.
If the break even on the costs is covered by the time you plan to live in the house, it seems resaonable to take the lower rate--you've lost no money and cover greater savings for the future--win win.
The points are tax dedctible, so, the true cost of the points is the after tax cost. You may be breaking even faster than you think.
so nice he had to post it twice...right john?
i tend to agree with john's advice here, too. since you're a little indecisive about what you plan to do long-term (though i think renting it is a stretch), your short term savings ought to be sweet enough to send you in that direction.
if you sell, of course, the 30-year comparison is a moot point. and, if we should have a "correction" in home prices in the short run - the 5-6 years you speak of - then you'd be compelled, it would seem, to sell at that point.
i tend to agree with john's advice here, too. since you're a little indecisive about what you plan to do long-term (though i think renting it is a stretch), your short term savings ought to be sweet enough to send you in that direction.
if you sell, of course, the 30-year comparison is a moot point. and, if we should have a "correction" in home prices in the short run - the 5-6 years you speak of - then you'd be compelled, it would seem, to sell at that point.
George,
I clicked on "SEND" and nothing happened for a long time
I clicked on "SEND" and nothing happened for a long time
LOL...and then he forgets to sign in!
john, we've all been down these roads; just part of the fun we have on MortgageFit!
john, we've all been down these roads; just part of the fun we have on MortgageFit!
I agree that renting it is a stretch. I also didn't know points were tax deductible.
What do you mean by correction in the short term? You mean if the value of the home goes up 20%? I guess I would be somewhat compelled to sell at that point.
I think you both have convinced my to buy the points. Just hard to let go of my cash up front for future savings. I guess that's why its called investing.
What do you mean by correction in the short term? You mean if the value of the home goes up 20%? I guess I would be somewhat compelled to sell at that point.
I think you both have convinced my to buy the points. Just hard to let go of my cash up front for future savings. I guess that's why its called investing.
I am not sure if Real Esate is any longer called investing
Especially with what happned recently
Especially with what happned recently
yes, i'm using "correction" in that sense - keep in mind that i used quotes the first time also, which was to indicate that it ought not to be construed as a real correction, which assumes that there's something wrong to begin with.
i guess it might have been a tad bit less confusing if i'd just noted "an increase in prices" instead.
geni, i have to agree with you, at least in part. and yet, i still believe that putting money into the ownership of real estate is a better choice than paying someone else's mortgage as a renter.
i guess it might have been a tad bit less confusing if i'd just noted "an increase in prices" instead.
geni, i have to agree with you, at least in part. and yet, i still believe that putting money into the ownership of real estate is a better choice than paying someone else's mortgage as a renter.