What should be my interest rate?

[solanoMan]

More information:

We don't have any credit card debt, we have a car loan of 900 dollars with 2 years to go, we have a combined income of 150k per year, no late payments or whatsoever and husband has been living in the US for 5 years and wife for 2 years.

The builder whom we are buying the house from is offering 12500 in closing cost if we use their lender. The lender quoted us for 6.625% for a 30 year fixed loan for a 481k house with 20% down payment. Is this right? What is the estimated closing cost for the house? Is this a good deal? Can we use some the closing cost to buy down the rate instead of using it to prepay tax (escrow)? Is this possible?

[VictorBurek]

Part of the problem is most people are looking for who ever tells them the lowest rate and lowest cost. Rcarrillo has made some great points above. There is so much that goes into advising the best mortgage plan for a home owner. For example, most people when they call me only want a 30 year fixed rate. Nothing wrong with that but other than your parents how many people do you know that keep a house for even more then 5 years. National statistics say a person will keep a home for 4 top 7 years but the average life of a mortgage is only 4 years. So, even if you plan on staying in your home for a while, you will look to refinance in about 4 years. The best advice i can give to anyone looking for help with a mortgage, dont look for the person that will do it for the cheapest, you get what you pay for. Find a professional in your area to assist you.

[Moonwalkr]

Well, we bought a house about that price for 6% interest a couple months ago, no points, with a closing cost about 1% of purchase price. Instead of comparing rates, we actually were naive and went with the lender who was the most responsive to our email questions.

BTW if average life of a mortgage is 4 years, we shouldn't ever buy down the rate upfront right?

[renriq02]

Depends...

My brother in law bought a house during the refinance boom.
He bought the rate down to 4.5% for a 30yr fixed.

Originally Posted by Moonwalkr

Well, we bought a house about that price for 6% interest a couple months ago, no points, with a closing cost about 1% of purchase price. Instead of comparing rates, we actually were naive and went with the lender who was the most responsive to our email questions.

BTW if average life of a mortgage is 4 years, we shouldn't ever buy down the rate upfront right?

[VictorBurek]

Originally Posted by solanoMan

More information:

We don't have any credit card debt, we have a car loan of 900 dollars with 2 years to go, we have a combined income of 150k per year, no late payments or whatsoever and husband has been living in the US for 5 years and wife for 2 years.

The builder whom we are buying the house from is offering 12500 in closing cost if we use their lender. The lender quoted us for 6.625% for a 30 year fixed loan for a 481k house with 20% down payment. Is this right? What is the estimated closing cost for the house? Is this a good deal? Can we use some the closing cost to buy down the rate instead of using it to prepay tax (escrow)? Is this possible?

Why do you think they are willing to give you $12500 to use their lender? they will make it back on the loan. I would strongly advise you to tell the builder you want to use a different lender and demand that they still give you the 12500 in concessions. all they are doing is giving a seller concession which is very common. If they dont want to tell the builder you will find another home. It is a buyers market and dont allow the builder to steer you.

[brokerdave]

Originally Posted by Moonwalkr

BTW if average life of a mortgage is 4 years, we shouldn't ever buy down the rate upfront right?

not necessarily,discount points break even anywhere between 2-3 years. this depends on if you have a 30 year or any of the short term ARM's. This comes in handy for people with discretionary income, who are looking for a write-off and want to keep there payments low (usually with self-employed or bonus incomes). how important is paying less? is it worth the 1-4% at closing? it depends on the person. i have never charged discount pts to a first time buyer. i only use it in cash-out refi's and special circumstances.

[VictorBurek]

the easiest way to determine whether you should buy the rate down is take what does it cost and divide by what does it save you in monthly payment so you can find a break even point. Generally speaking each point will buy down about .25 to .375%. So lets say loan amount is 200k and with no discount points the rate is 6.5 that makes payment $1264. If you pay 1 point(1% of loan) which on this example is $2000 if you get a .375 drop in rate, thus a 6.125 your payment is $1215. Thus your monthly savings would be 1264 - 1215, which is $49 per month. So by paying $2000 you save 49 per month giving you a break even point of 2000/49 which is 40 months. If you are going to be in this mortgage for 40 months then it definitely makes since to do it.