You definitely reported on some of the considerations people make when picking mortgage. With the longer term, you may be able to afford a larger mortgage, which can be helpful in a state with high property costs like NJ.
For the example you shared, what was the initial cost of the home and down payment? For each option, how much would you pay in total for the home, assuming you lived in it through the life of the loan?
The initial cost of the home is $300,000 and the down payment is $60,000. I opted to examine the 30-year fixed rate loan at 4.125% interest rate and the 15-year fixed rate loan at 3.5 % interest rate. The annual percentage rate (APR) gives the total cost of the mortgage. The total costs include the interest rate, broker fees, closing costs, and among other costs. The APR is thus a better figure in estimating the total costs of buying a home through a mortgage. For each option, I would pay different amounts depending on the APR rate. Under option for a 30-yeat fixed rate at an APR of 4.226%, I would pay $418,680 in total. For the 30-year fixed rate FHA at an APR of 4.778%, I would pay $477,000 in total. For the 15-year fixed rate, I would pay $308,880. Since I am looking for a 30-year mortgage option, the best option would be the 30-year fixed rate option at a rate of 4.226%. The total amount is $418,680.
- Define break-even point.
- Assume that the value of one discount point is $3,000. If by paying the $3,000 will lower the overall cost of the mortgage by $112.5, how long does it take to make up the cost of the point?
- Would it be advisable to pay the extra $3,000 if you plan to stay in the house for less than 2 years? Why or why not?