When helping my clients evaluate their mortgage options, I give them choices between the lowest interest rate with standard closing costs and a higher interest rate with lower closing costs. Some people are most concerned with the monthly payment being as low as possible, while others want to save their up-front money. It’s a simple calculation to see which option is best for my clients.
Here’s an example with a $350,000 house and $280,000 loan amount:
Option 1: 30 Yr. Fixed Interest Rate: 4.375% (4.425% APR)
Closing Costs: $2560
Monthly P&I: $1398
Option 2: 30 Yr. Fixed Interest Rate: 4.5% (4.55% APR)
Closing Costs: $110
Monthly P&I: $1418
So for an extra $20 in monthly payment and .125% in rate, one can save $2450 in closing costs. Is it worth it? Divide 2450 by 20–it takes 122 months for the higher monthly payment to be more expensive than putting extra cash down up-front. So if you are going to have the mortgage for more than 10 years, then it’s worth getting the lower rate. If you think you will sell or refinance before then, it’s better to save the money at closing.
If you are considering buying or refinancing a home, give me a call at 512-587-9936.
Sr. Loan Officer