Retch The Grate
Full time employment: Posting here.
Ok, so we are buying a house, with a conforming 30 year fixed loan for the full amount allowed in our area: $756,600. I really wanted to do a jumbo for about $1.4m given how low rates are but pandemic+visa issues for my wife meant her income this year was messed up. I expect to carry to mortgage past the point where we are FI again, and probably past our RE point.
The mortgage broker can get us 2.5%, or we can get 2.75% with a $7700 credit towards our closing costs. After thinking about it, since both loans are for the full amount, it's logically just the offer they made before of 2.75% or we can pay $7700 for a 2.5% rate.
Mortgage broker says it will take 9 years to break even (online calculators roughly agree), then the 2.5% rate pulls ahead, but this is ignoring investment returns, and since all money is fungible, thereturn on me keeping the $7700 invested in VTSAX. Also since it is a fixed rate mortgage, the payment is shrinking in real cost over time due to inflation.
I'm trying to build a spreadsheet to model it, but need to decide this afternoon and have work and errands I have to get done too. My gut feeling is that buying the lower rate (even if it is couched as getting paid to take the higher rate) is probably not right unless we end up in an extremely low rate of return environment for the long haul which pundits keep predicting but has not happened as of yet... Does anybody happen to have a google sheet that already has this modeled so I can actually build a good comparison? Or know this decision well enough that it is obvious which one is a better decision (seems dependent on rate of return and inflation assumptions off the top of my head).
At least I know that given the non-obviousness of the decision it probably is close enough financially that it really doesn't matter in light of our resources and income. But still, I'd prefer to "get it right".
The mortgage broker can get us 2.5%, or we can get 2.75% with a $7700 credit towards our closing costs. After thinking about it, since both loans are for the full amount, it's logically just the offer they made before of 2.75% or we can pay $7700 for a 2.5% rate.
Mortgage broker says it will take 9 years to break even (online calculators roughly agree), then the 2.5% rate pulls ahead, but this is ignoring investment returns, and since all money is fungible, thereturn on me keeping the $7700 invested in VTSAX. Also since it is a fixed rate mortgage, the payment is shrinking in real cost over time due to inflation.
I'm trying to build a spreadsheet to model it, but need to decide this afternoon and have work and errands I have to get done too. My gut feeling is that buying the lower rate (even if it is couched as getting paid to take the higher rate) is probably not right unless we end up in an extremely low rate of return environment for the long haul which pundits keep predicting but has not happened as of yet... Does anybody happen to have a google sheet that already has this modeled so I can actually build a good comparison? Or know this decision well enough that it is obvious which one is a better decision (seems dependent on rate of return and inflation assumptions off the top of my head).
At least I know that given the non-obviousness of the decision it probably is close enough financially that it really doesn't matter in light of our resources and income. But still, I'd prefer to "get it right".