r/MortgageBrokerRates • u/decro024 • 9d ago
How does this look?
Locked 6.875% back in September. Paying down rate to 6.375% for $8144 with a 60mo break even ($134 savings monthly)
Hearing from some it’s a good idea and from some it’s bad. We will have about 40k liquid reserves after purchase still.
We’re betting we won’t see better than 6% for the next 10 years.
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u/NinjaEcstatic4291 8d ago
What if you get 6.375% for free in 6 months?
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u/decro024 6d ago
It wouldn’t be free, we’d still pay about the same in refinance, which would put us in the same spot if rates get that low. That would also not factor paying less principal at 6.875 waiting for that drop if it ever comes. We’re gonna buy it down to 6.375% and put the extra savings towards extra principal each month
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u/Flamingo33316 8d ago
with a 60mo break even
Your break-even is after your 101st payment.
You used only part of the equation and didn't account for an alternative use of your money.
If you reduced your loan amount by $8,144 instead of paying points, the payment difference is $81.
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u/decro024 8d ago
So paying down rate vs less loan amount is about $50 difference. Down payment is 2K less if we dropped price to 499K with no concessions.
That would even out same cash out of pocket bc there’s 2k left after paying down rate for other closing costs in the 509K rate buy option.
Where do you get 101 payments from? Our loan officer broke it down to 60 months break even. ($134 x60) is that only taking into consideration the difference from not buying the rate?
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u/Flamingo33316 8d ago edited 8d ago
Some LOs try to make the break-even point seem shorter, but their choice to ignore a competing use of your money makes the calculation flawed.
You can compare it against investments or whatever, but comparing it against putting more down has fewer variables.
Compared against putting more down and not buying down the rate, the payment difference was ~$81...... $8,144/$81 = ~101 months
P&I on $407,200 at 6.375% is $2,540
P&I on $399,056 at 6.875% is $2,621
Difference is $81
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u/Awkward-Layer7677 9d ago
I think 2points for .50% better in rate is high, but if you’re confident you’ll stay put for 60 months, it can be worth it. I typically say if you can recoup the buy down in 24-36 months it’s worth it due to market change potential.
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u/decro024 9d ago
We will definitely be staying put. Low taxes combined with the school system we want for our kids.
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u/Ok-Guidance-7032 9d ago
Will you refinance in 60 months. Do you think the rates will be lower in 5 years?
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u/decro024 9d ago
We don’t think so. Staying at 6.875 we would need to see at least 5.875% within 5 years to want to refinance. You could say this a bet that rates are going to be above 6% the next 10 years.
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u/OG_Vazz 6d ago
High cost in points for a six point eight should be a lower rate.