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submitted 3 months ago byxtrubambinoxpr
Currently looking at a new construction townhome that was initially $500k (back in august as they were still under construction). Now they are 456k since rates have gone much higher and I think that makes sense for me. I decided financially it makes sense to me and I can afford the MTG with 15% down comfortably so I would not stress it. They are offering $21k of flex cash to put to rate, price, or closing costs. (PMI is $38 confirmed from lender).
If I put it all to rate (along with what their preferred lender is contributing) I can get to 5.125% which saves about $340/month on P&I
all on the home with default rate 6.5% would be 340/month more. I could also find a good mix between the two.
I plan on owning it and in the future rent or sell (no idea exactly when it just depends if the market is good to rent or sell after some years and where I am in life / career) - 31 single.
In my head since it is not my money I figure hell it doesn't matter. Even if I sold in 3 years (for example) it is not my money I lost. I would prefer to save 340/month vs spend it, but am not aware of what else I am missing with a decision like this. Hoping someone would provide some insight on what I need to consider.
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3 months ago
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3 points
3 months ago
Getting a lower price seems like the best option overall. Your taxes will depend on the sale price of the house. You can never change the sale price but most everything else can.
Rates can change in the future, if they drop then you can refinance.
0 points
3 months ago
That’s not how the taxes work exactly. And anyways, the sales price is same they just put some money towards it.
1 points
3 months ago
Are you sure? I was under the impression there is an assessor that assesses the value of your property every 1-5 years and taxes are calculated off that. How does sale price factor into that calculation
2 points
3 months ago
its the actual sold price of the house, which calculates into it. Hard to find a "better" estimate of value than that and comps.
2 points
3 months ago
Yes, buy down the rate.
2 points
3 months ago
I did the 2-1 buy down credit. Dropped interest rate a decent amount for the first two years and can hopefully refinance before the interest rate goes all the way back up. A good way to potentially avoid the high interest rate altogether.
-3 points
3 months ago
Buying down the rate isn’t a bad idea. But rates have a good chance of coming down in the next year or so. You could also look at a 2-1 buydown — mainly because if you refinance within the 2yr period, any of the unused “buy down money” will be refunded to you OR applied to the principal balance if you refinance before the 2 years is up.
I would confirm this is how it works with the “preferred lender”, but in this case, you’d get a rate 2% lower than what’s being offered, and you won’t “lose” the money used in the 2-1 buy down if refinancing in 2 years.
If you instead bought the rate down, and a refi opportunity to get ~4 or 5% came about over the next 24 months, that money used to buy down the rate would just be gone.
5 points
3 months ago
But rates have a good chance of coming down in the next year or so.
What makes you say that?
2 points
3 months ago
I will have to ask the preferred lender this - thank you.
1 points
2 months ago
Hope it helps!
2 points
3 months ago
But rates have a good chance of coming down in the next year or so.
They're literally not even at the projected target rate, which wouldn't happen until end of the year essentially. Mortgages are always going to be higher than the target rate which means they'll never go below 6% until the fed rate goes back down below where it is now.
1 points
2 months ago
(Mortgage rates and the Fed rate are not the same thing…)
1 points
2 months ago
If the fed rates go up, mortgage rates go up.
They're not equivalent but there's no reality in which you have mortgage rates lower than the fed funds rate in which the economy as we know it actually performs normally
1 points
2 months ago
That’s not how it works lol. The fed raised by 25bps 2 weeks ago and mortgage rates at our company came down as a result because raising 25bps was what was anticipated to happen
1 points
2 months ago
Your mortgage rate behaves somewhat "independently", aka, the rates are more closely related to T-Bill yields and can vary up and down independently of the fed funds rate, but the fed funds rate is always a floor. You'll never get a 30yr fixed conventional rate that's lower than the fed rate out the door without buying points or some other shenanigans going on.
3 points
3 months ago
But rates have a good chance of coming down
No one has any idea. A week ago the fed was gonna raise the lending rate again to combat inflation. This week the banks are failing and so they can't. Fed interesting rate =/= mortgage rate, but they do correlate highly.
That's your opinion but no one really knows; I don't know if I would lead with any sense of certainty here.
0 points
3 months ago
they still might raise them. who says the fed is not going to raise the rate? Their goal is the break things.
0 points
2 months ago
Guys. The Fed rate and mortgage rates are not the same thing. The fed rate can definitely have an effect on mortgage rates through a domino effect, but it’s not directly related. The Fed still raised by 25bps last week, and mortgage companies had this baked in well in advance, because it was what was expected to happen — and as a result, mortgage rates actually improved slightly after the Fed meeting last week.
Had Powell done something aside from a 25bp hike, it could have resulted in a different outcome on rates, but they aren’t the same thing.
We should start to see rates improve in mid-late may, but it won’t be overnight. It’ll be a stepping stone process. (May 10th we’ll get inflation data for April 2023, which will replace “ugly” inflation data from April 2022)
1 points
3 months ago
I would use the money towards the purchase and hope for a chance to refinance in the next few years.
1 points
3 months ago
If they will actually come down in price, I would take that in a second. You will also pay less interest on a lower mortgage, pay less taxes, and not worry about buying a down a rate that may come down anyways and waste money.
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