I am planning to take 7 yr ARM mortgage (conforming: similar to 30yr fixed for the first 7yr years). I think I am not going to stay in my home longer than that. Would you please help me compare 2 different mortgages ?
Selling price 255K
1) No-fee mortgage from Bank of America: They pay for closing cost and survey (part of the program). I have locked the rate at 6.25 which means that 7 yr ARM would go for 5.625 (~0 points). I need to pay 5% down ($12750) and I am not going to pay PMI. (part of the program - even with 5% down). So PI only would be ca. 1394 (Insurance $80, Taxes $433 so PITI comes to $1907)
2) Wholesale countrywide program offered thru some broker
7 yr ARM, 0% down, rate locked at 5.125 with CW. As I wanted "lender's paid PMI" my rate jumped to 6%. So my PI = 1528, (I= $83, T =$ 433, PITI = $2044). Cost of brokerage + closing = 3.5K
If I go with BofA I pay 12750K down, but I have lower payment by $137, I do not pay closing costs.. If I go with CW I pay 0% down, but I pay 3.5K in closing costs ...
When I took an amortization table I figured that If I stayed in the house for exactly 7 yrs (then sold or refinanced) I would pay $90.5K in interest if I went with BofA (242250 at 5.625%). I would pay $102K in interest if I went with CW (255K at 6%)..so over 7 yrs there is savings of ca. $12K. (PV ~ $8K, based on time value of money..)
It seems for me I should go with CW
- less $$$ upfront
- If I stay only say, 3 yrs the difference in interest would be even less
- declining values of homes...what If my place will be worth 230K in 2 yrs ? Austin, TX market is one of the best in US however nobody knows how serious the crisis is ...so my take is ...instead of building equity that might evaporate, perhaps I should use some of that downpayment to update the house (1978 yr, located in prime Austin neighborhood, however dated but clean)
Pls help out ..
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