First time home buyer : Credit for closing vs lower interest rate (loan, loan)

[vraj]

Hi,

I'm a first time home buyer and have BIG confusion choosing lender.
So I have two lenders that I filtered down (one is builder prefer lender)

Prefer lender rate is 0.375 higher but ill be getting 7k towards closing cost. Which is about 100 more per month. My loan is 30 yr fixed conventional.

Please suggest whome to choose and what to consider choosing.

[Jeo123]

It's math based on:

A) How long you'll live there
B) The mortgage amount

Also, FYI, most lenders won't give you a refund of the closing costs. In otherwords you can't take the $7k unless you have at least $7k in closing costs.

Assuming you'll take the money saved on closing costs and use that for a larger down payment, you need to figure out whether reducing your mortgage balance by $7k saves you more than increasing the rate on the entire mortgage.

High level: The more you borrow, the less the $7k is worth it. If you were taking out a $1million mortgage, $7k would be nothing, but the interest rate increase would be huge. If you were only borrowing $50k, putting an extra $7k down is huge, but the interest rate is nothing. Reality is you're somewhere in the middle.

Even if the rate is higher, you also need to account for the fact that if you were only there one year, you'd probably come out ahead because .375% of your mortgage probably isn't more than $7k. The longer you stay there though, the more the balance shifts.

You can't answer this question without doing some math, and you don't have enough numbers here to answer this correctly.

[vraj]

Thanks for the details.
1. Honestly I don't have any plans to move out.
Unless something major happens I'll at least stay 5 years.
2. The loan amount is 412k.

The way I'm thinking is, if i take lower int rate ill save about 100 per month. And that will take almost 6 years to cover 6k.
So is it worth taking lower int rate?

[thelopez2]

Originally Posted by vraj

Thanks for the details.
1. Honestly I don't have any plans to move out.
Unless something major happens I'll at least stay 5 years.
2. The loan amount is 412k.

The way I'm thinking is, if i take lower int rate ill save about 100 per month. And that will take almost 6 years to cover 6k.
So is it worth taking lower int rate?

What will be the difference in the loan balances in 6 years??