help me pick the best mortgage

[Aharami]

All 30 yr fixed.
$280000 purchase price
10% down
$252000 loan amt

Option 1
Interest - 6%
monthly mort. payment - $1510
PMI - 109
tot. monthly payment - $1620
closing costs - $3000

Option 2
Interest - 6.375%
monthly mort. payment - $1572
PMI - 0
tot. monthly payment - $1572
closing costs - $3000

Option 3
Interest - 6.5%
monthly mort. payment - $1592
PMI - 0
tot. monthly payment - $1592
closing costs - $800

Option 1 is a lower interest rate but I'd have to pay PMI and full closing costs.

Option 2 I'd pay a higher interest rate, but dont pay PMI and yet still come out with a lower monthly payment. I'd have to pay all closing costs with this option

Option 3 is the highest interest rate but I wouldnt have to pay any PMI and almost no closing costs - only have to pay first month's interest and special assessment. Bank pays all other required closing costs.

I stuck between option 2 and 3. Cant seem to figure out how to factor in the higher closing costs in 2 to figure out which is the better deal.

Option 1 and 2 are from Bank 1. They are just charging us a higher interest rate if they cover PMI, but ends up working out for us because monthly payments are lower with them covering us and charging us a higher interest rate.

Option 3 is from Bank 2 where they pay all closing costs and PMI. But ends up charging us a higher interest rate for it (even though they say they dont)

Also, is PMI tax deductable like the interest payment is?

 

[Gooberlx2]

PMI is now tax deductible...as of last year.

Without figuring out amortization and all that, the difference in your closing costs is $2200, whereas the difference in payment over 30 years is $7200. Are you going to be immediately hurting for sums of money to buy any major appliances or do renovations?

 

[Capt Caveman]

PMI is tax deductible now.

How much of a down payment are you putting down? I would think Option 2 would with no PMI would mean you're putting down a larger down payment and would lead to a lower interest rate.

 

[mshan]

I believe with option 3 you are paying for PMI and closing costs, it is just rolled into a higher interest rate. If you are not going to live here too many years, that may be ok, but if you are going to live here for a long time, usually paying up front and out of pocket makes more sense. There are calculators around which can calculate the break even point.

Other thing to figure out is which items are tax deductible, to see how that would reduce out of pocket closing costs.

 

[Beattie]

As long as they are all fully amortizing traditional mortgages, I think option 3 is the best. It would take like 10 years to make up the 2200$ savings on the down payment between 2 and 3 and you could always refinance for a lower rate if they go down. I am curious as to how you don't have to pay the PMI with those but you do with the first one. If it's because there's a second mortgage rolled in there that's at a higher rate or with worse terms (interest only, adjustable, etc) then the first one is probably the best option.

 

[ViviTheMage]

THANK GOD PMI is tax deductable now, haha.

 

[Aharami]

sorry edited the OP. $280K is the purchase price.
putting down 10%. So loan amt is $252K. This is the same for all three loans

Option 1 and 2 are from Bank 1. They are just charging us a higher interest rate if they cover PMI, but ends up working out for us because monthly payments are lower with them covering us and charging us a higher interest rate.

Option 3 is from Bank 2 where they pay all closing costs and PMI. But ends up charging us a higher interest rate for it (even though they say they dont)

 

[JTsyo]

With PMI, I thought most places take it off if you make a few months of payments on time. Also if you put down 20%, is there no PMI?

 

[Capt Caveman]

Note - Option 2 and 3 will require you to refinance your mortgage to remove PMI even if your equity in your home reaches 20%

 

[Gooberlx2]

Originally posted by: JTsyo
With PMI, I thought most places take it off if you make a few months of payments on time. Also if you put down 20%, is there no PMI?

I've never heard of banks taking off PMI with a few steady payments. 20% down should result with no PMI.

 

[Gooberlx2]

Originally posted by: Capt Caveman
Note - Option 2 and 3 will require you to refinance your mortgage to remove PMI even if your equity in your home reaches 20%

Options 2 and 3 don't even list PMI.

 

[Aharami]

Originally posted by: JTsyo
With PMI, I thought most places take it off if you make a few months of payments on time.

really? this is news to me. I thought you have to pay PMI until you reach 20% of home's value.

Also if you put down 20%, is there no PMI?

we're putting down 10%.. If we were putting down 20%, option 1 would be a no brainer

 

[Capt Caveman]

Originally posted by: Gooberlx2

Originally posted by: Capt Caveman
Note - Option 2 and 3 will require you to refinance your mortgage to remove PMI even if your equity in your home reaches 20%

Options 2 and 3 don't even list PMI.

B/c PMI has been rolled-up into the interest rate(increasing it).

 

[richardycc]

you do know that most of the ATOTers live in their parent's basement for free, right?

 

[Gooberlx2]

Originally posted by: Capt Caveman

Originally posted by: Gooberlx2

Originally posted by: Capt Caveman
Note - Option 2 and 3 will require you to refinance your mortgage to remove PMI even if your equity in your home reaches 20%

Options 2 and 3 don't even list PMI.

B/c PMI has been rolled-up into the interest rate(increasing it).

Oh I see what you're saying: that he's paying the difference on the back end over time. I agree with you there.

 

[JEDI]

if u can afford it:
4.99% fixed, but 10yr MAX

 

[Aharami]

Originally posted by: JEDI
if u can afford it:
4.99% fixed, but 10yr MAX

link fixed.
and thats a home equity loan. Would they even give that out for mortgages? Besides, comes out to $1000/month extra. I'd rather have that extra 1K liquid

 

[sactoking]

Where will you be living? Is it one of the many down markets? If so, have the seller carry your closing costs. If the refuse, they're not interested in selling. There's no reason a buyer should be paying closing costs in this market.

Beyond that, how long do you plan on staying there?

In all honesty, Option #1 looks to be the best. If you take Option 2, you're basically agreeing to finance your PMI over the entire 30-year loan, instead of just when you're below 20% equity. As another poster said, the only way out of that deal is to refi later on, and that comes with additional costs. If you take Option 3, you're agreeing to pay PMI AND closing costs for 30 years, both at a higher interest rate. Like I said, you shouldn't pay any closing costs in this market, much less tie them up for 30 years at 6.5%.

You build equity faster with Option 1, aren't financing something needlessly over 30 years, and have the best option to getting out of the PMI, all for $28 or $48 per month.

 

[Gooberlx2]

Originally posted by: sactoking
Where will you be living? Is it one of the many down markets? If so, have the seller carry your closing costs. If the refuse, they're not interested in selling. There's no reason a buyer should be paying closing costs in this market.

Agreed, wife and I just signed papers with a builder/lender. They're eating closing costs and buying down our rate to 5.5% (and paying our agent's commission, but I guess that's standard, at least in Colorado....nice that he's a friend of ours and since they're paying him 4%, he's going to give us back 1% after the closing).

If the seller is motivated enough, you should be able to get them to pay all closing costs and agents' commissions.

 

[QED]

How much did you buy the house for?

Comparing Loan #1 vs Loan #2, you are essentially comparing spending $109 a month on PMI vs. spending up to $73.50 a month extra on interest ($252,000 * ( 6.35% - 6%) ) / 12). With Loan #1, the $109 a month PMI expense can remain until you have 20% equity-- based on the value of your home at the time the loan was made. Assuming this is a 100% LTV loan, then you would not yet have 20% equity until your 140th payment-- so you would have 140 payments of $1620, and then 160 payments of $1511. By the time you have made your 140th payment, you will have spent $15,260 on PMI with Loan #1, versus the $10,221 you would have spent on extra interest during the same time frame with Loan #2. The lower interest rate on Loan #1 does not save you money until your 216th payment. Hence, unless you are planning on keeping your mortgage for at least 20 years, or plan on having enough equity to refinance well before your 140th payment, you are better of with Loan #2.

Comparing Loan #2 to Loan #3 is also pretty straight forward. Loan #3 has a higher interest rate, but saves you $2200 in upfront closing costs. Obviously the longer you plan on keeping the mortgage, the less attractive Loan #3 becomes as the extra interest you pay each month eats away at the $2200 you saved. How long until the $2200 you saved is gone? By my calculations, about 70 months-- or just under 6 years. What if instead you put the $2200 dollars into a high-yield CD, though, at 4% interest? Then it would take you about 96 months, or 8 years, for you to benefit from the lower interest rate of Loan #2. Hence, if you plan on refinancing in the next 6 to 8 years, your are better off with Loan #3 versus Loan #2. Or, best yet, take the $2200 you save in closing costs and pay down your principal on Loan #3 right away-- and no matter how long you stay with your current mortgage you will save versus Loan #2, and will save you verus Loan #1 for the first 20 years.

 

[Skiddex]

i just bought and paid 1.15 points to get my PMI dropped keeping the same rate which i will make up in 18 months of no PMI payments. Did they give you that option at all?

 

[Aharami]

Originally posted by: Gooberlx2

Originally posted by: sactoking
Where will you be living? Is it one of the many down markets? If so, have the seller carry your closing costs. If the refuse, they're not interested in selling. There's no reason a buyer should be paying closing costs in this market.

Agreed, wife and I just signed papers with a builder/lender. They're eating closing costs and buying down our rate to 5.5% (and paying our agent's commission, but I guess that's standard, at least in Colorado....nice that he's a friend of ours and since they're paying him 4%, he's going to give us back 1% after the closing).

If the seller is motivated enough, you should be able to get them to pay all closing costs and agents' commissions.

that's an awesome deal :shocked:
unfortunately, the property's already under contract (out of attorney review) so we cant really really negotiate anymore on this. We are first time home buyers and Im sure we could've had a better deal if we'd pushed for it. That being said, we are happy with the deal got - NJ real estate market went down a bit, but only by like 5-8% (according to our realtor) and the most recent comp sold in Jan for 20K more.

 

[Aharami]

QED, bought the house for 280K. We're putting 10% down so loan amt would be 252K. How did you calculate by what payment I'll reach 20% equity?

 

[Aharami]

Originally posted by: Skiddex
i just bought and paid 1.15 points to get my PMI dropped keeping the same rate which i will make up in 18 months of no PMI payments. Did they give you that option at all?

no that option wasnt presented to us, but I can certainly ask about it. How much would that 1.15 points cost us on a 252K loan?

 

[Capt Caveman]

Originally posted by: Aharami

Originally posted by: Skiddex
i just bought and paid 1.15 points to get my PMI dropped keeping the same rate which i will make up in 18 months of no PMI payments. Did they give you that option at all?

no that option wasnt presented to us, but I can certainly ask about it. How much would that 1.15 points cost us on a 252K loan?

.0115 x 252k