Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Imagine that you have a choice of two loans. With Loan B, your home state gives you 3% of your loan's value that you can keep and use towards a down payment, but you're stuck with a higher interest rate (and if you move within 8 years you have to pay back an amount prorated for what's left of 8 years time). I wouldn't mind a "gift" of $4800 from the state, but I can manage without it and choose Mortgage A if it's the best option. Which is better? Using the Mortgage Calculator I get these numbers:
Mortgage A:
$160,000 at 3.88%
Monthly payment = $753
Total of 360 payments = $271,021
Total interest paid = $111,021
Mortgage B
$155,200 (which is $160k - 3%) at 4.45%
Monthly payment = $782
Total of 360 payments = $281,438
Total interest paid = $126,238
At a difference of $29/month, it would take 165 months (13 years, 9 months) to make up $4800 in the monthly payment.
Last edited by Bhaalspawn; 01-15-2016 at 08:04 PM..
Well, yeah, with Mortgage B you have a higher monthly payment, but you also have $4800 more money (that diminishes down to zero after 13 years, nine months) before you start to lose money.
Perhaps whether or not it's worthwhile depends on when you plan to sell the house?
I guess overall, as things stand now, I'd prefer Mortage A. If the interest rate gap were to shrink, Mortgage B might become more interesting.
At a difference of $29/month, it would take 165 months (13 years, 9 months) to make up $4800 in the monthly payment.
You should look at the remaining balance too.
If you paid $29 a month extra to loan #1, so your payment matches loan #2, your remaining balances would be the same at about month 82, 6 years 8 months. I haven't taken into consideration tax deduction or the PMI that SmartMoney brings up.
What happens in loan #2 if you refinance, do you have to pay back a prorated amount?
Although it is not called a prepayment penalty, it functions in much of the same manner.
Imagine that you have a choice of two loans. With Loan B, your home state gives you 3% of your loan's value that you can keep and use towards a down payment, but you're stuck with a higher interest rate (and if you move within 8 years you have to pay back an amount prorated for what's left of 8 years time). I wouldn't mind a "gift" of $4800 from the state, but I can manage without it and choose Mortgage A if it's the best option. Which is better? Using the Mortgage Calculator I get these numbers:
Mortgage A:
$160,000 at 3.88%
Monthly payment = $753
Total of 360 payments = $271,021
Total interest paid = $111,021
Mortgage B
$155,200 (which is $160k - 3%) at 4.45%
Monthly payment = $782
Total of 360 payments = $281,438
Total interest paid = $126,238
At a difference of $29/month, it would take 165 months (13 years, 9 months) to make up $4800 in the monthly payment.
Your monthly payment is solely the principal and interest payment and does not include PMI, taxes, or insurance, the big one there is the PMI and any UMIP on either loan. Post the full numbers and you will easily tell the difference between the two. If you were to pay the additional $29 to option A every month, very unlikely but still, you would save $8,530 in interest, totaling $102,490 in interest payments or $23,748 less than option B, and shave 2 full years off the life of the loan.
As a side note, and I've posted this before a bunch, the average homeowner keeps a home for 16 years before selling it. If you kept the home past the 165 month mark you begin losing money for basically nothing.
Your monthly payment is solely the principal and interest payment and does not include PMI, taxes, or insurance, the big one there is the PMI and any UMIP on either loan. Post the full numbers and you will easily tell the difference between the two. If you were to pay the additional $29 to option A every month, very unlikely but still, you would save $8,530 in interest, totaling $102,490 in interest payments or $23,748 less than option B, and shave 2 full years off the life of the loan.
As a side note, and I've posted this before a bunch, the average homeowner keeps a home for 16 years before selling it. If you kept the home past the 165 month mark you begin losing money for basically nothing.
Didnt understand the last line.....how do we lose if we keep the home past 165 month mark???
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
