What would you do? 4.75 with 196K to close OR 5.00 with 126K to close

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Submitted by matt-waiting on February 7, 2011 - 3:20pm

I have been struggling with this issue. I can put down enough to get a conforming loan at 4.75%. Or, I can put down 20% and get a non-conforming loan at 5%.

I plan on being in the home a long time (>15 yrs). I am in the 28% tax bracket. I would estimate that I could get 5-7% returns in the stock market. It would cost me about 5K to buy the non-conforming rate down to 4.75.

What would you do?

a) 4.75 with 196K to close

b) 5% with 126K to close

c) Buy down the rate to 4.75, need 131K to close

Submitted by ljinvestor on February 7, 2011 - 3:51pm.

B unless you have plenty of savings. Might also consider cost of buying down rate to 4.875 instead of the $5k for 4.75

Submitted by Effective Demand on February 7, 2011 - 6:22pm.

I personally chose option D on my purchase.

Took the conforming rate, then took a HELOC out back to 80% and wrote myself a check and put that money in investment. My HELOC rate IS variable.. but its also 3.75% interest rate currently.

Also I got the i/o only option on the HELOC to help maximize my cash flow options on a monthly basis.

Submitted by FormerSanDiegan on February 7, 2011 - 11:56pm.


Submitted by an on February 8, 2011 - 12:00am.


Submitted by recordsclerk on February 8, 2011 - 12:30am.


Submitted by scaredyclassic on February 8, 2011 - 5:45am.

whats the difference in payments?

Submitted by matt-waiting on February 8, 2011 - 12:05pm.

A. $2,175 (417K loan) vs.

B. $2,620 (488K loan)

Submitted by Effective Demand on February 8, 2011 - 1:26pm.

If you think you can make 5-7% returns in the market (not an unreasonable assumption) then there isn't a scenario out there that makes sense to put more down..

The scenarios out there that make sense to put more down are ones where you're investments do poorly.

Submitted by scaredyclassic on February 8, 2011 - 3:14pm.

No that's not right it's like you making a 5,000 a year return on your 70,000 by sticking it in your house, since you're paying out 5,000 a year less in payments. That's about 7 percent tax free so you'd gave to do better than 7 perc in the market.

Submitted by Doooh on March 30, 2011 - 5:28pm.

Walter can you clarify that math for me? I'm a hard learn'ed.

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