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I'm in the process of trying to refinance my house. I currently have an interest rate of 4% and owe about $240k on the loan. The home is valued now at $350k and my credit score is over 800.
I'm getting bombarded with lenders calling me and just trying to get through all the noise. I wanted to ask if it would be better overall to get a loan with a slightly higher interest rate but with low or no closing cost or would it be better to get a lower interest rate and take the hit with the additional points or fees.
For example, I was quoted a rate of 2.99% with a credit of $602 so in that scenario it would be "no cost" other than taxes, insurance, and interest etc.
Versus one with a rate of 2.5% but the cost out of pocket with be $3,000 plus taxes, insurance, and interest. This would be added to my principal loan amount.
I plan on staying in the home for at least five years or so. I think either way it is better as I'm dropping my interest rate but wanted to know which would make more sense and if there was something I was leaving out or missing. Thanks in advance.
Search for an amortization schedule online and plug in the numbers. Look for where the break-even point is. If you plan to stay in the home for at least that long, then the lower rate, higher closing cost option is the way to go.
I'm in the process of trying to refinance my house. I currently have an interest rate of 4% and owe about $240k on the loan. The home is valued now at $350k and my credit score is over 800.
I'm getting bombarded with lenders calling me and just trying to get through all the noise. I wanted to ask if it would be better overall to get a loan with a slightly higher interest rate but with low or no closing cost or would it be better to get a lower interest rate and take the hit with the additional points or fees.
For example, I was quoted a rate of 2.99% with a credit of $602 so in that scenario it would be "no cost" other than taxes, insurance, and interest etc.
Versus one with a rate of 2.5% but the cost out of pocket with be $3,000 plus taxes, insurance, and interest. This would be added to my principal loan amount.
I plan on staying in the home for at least five years or so. I think either way it is better as I'm dropping my interest rate but wanted to know which would make more sense and if there was something I was leaving out or missing. Thanks in advance.
Calculate how much you are saving comparing how long it would take you to pay the difference. Then see if it is within 2 years, considering that you plan to sell in about 5 years, seem still beneficial. If it takes more than 2 years to justify your closing costs, then go for higher interest.
Keep in mind, that in addition to rate cost (discount points), there is also a loan cost that includes origination fee. Always check all those numbers and compare LE from each lender to see the best value. Good luck!
I think either way it is better as I'm dropping my interest rate but wanted to know which would make more sense and if there was something I was leaving out or missing. Thanks in advance.
You can do the math with this mortgage calculator.
Then you'll be in a better position to make a decision.
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