need help with mortgage choices

Assuming prime - 1/2 stays where it is, option 2 is your best bet. But if the prime rate plummets, again, the first option will become attractive. That's the gamble you take with variable rate loans.

I hope that's not getting in the way of you getting the best possible mortgage. The rates you cited are on the high side. According to BankRate.com, the average 30 year mortgage is currently at 5.76%. That's not HUGELY less than what you quoted, but enough that it's worth looking in to.

--Bill

I don't like #2 because you have 30 years at 9%, and that is too much to pay plus it negates the great interest rate on the primary loan. That means picking between #1 and #3. I don't like interest only deals since they tend to blow up and cause big damage. That leaves #3. Since it is the lowest money down, you have some extra cushion after closing. That in and of itself is often a big factor.

Is there any chance you can scrape up 20% down? It looks like you could get a 30 yr fixed at 6.125% if you did. Now that would make a difference over the long haul. But if you are staying only a few years, then the interest rate really doesn't matter--with a short time horizon, you really have to treat this like a rental deal (and a very expensive rental at that).

-john-

Spreadsheeting this, I get (1) $628.35/mo (2) $620.23/mo (3) $625.40 plus PMI payment per $100,000. (note: I treat the cash down as 5%, for 'opportunity cost')

I don't like PMI, you may never get rid of it, given your timeline. I'd choose (2) not just for the $8/mo savings over (1), but with rising income, you can pay the 9% second back at an accelerated rate. Doubling the payment drops the payback from 30 years to 7. I'd make that payoff my priority, right after putting in matched 401(k) money (if you can). JOE

I like 2)

both rates are fixed. You suggest only 5-7 years, life could change. If you are going to own property and be highly leveraged, I think fixed rate is the way to go.

Especially in the era of sub prime mortgages (variable rate mortgages) causing problems.

Keep your costs fixed.

I also agree the rates look high. I just refinanced (last month) an

80-10-10 and got 5.75% on first and 7.4% on second, both 30 year fixed.

Always love the spreadsheets. I figured the same thing Joe did with my 7.4% fixed second. Accelerating payments to pay off early is a good move.

Don't bankrate.com's rates assume a 20% down?

Probably. Who knows where BankRate.com gets those numbers from. But the OP was contemplating an 80-10-10 mortgage. I believe that's usually considered a 20% downpayment for purposes of the primary mortgage (hence how you get around paying PMI).

Since everyone talked about spreadsheets, I put together one and put it up for review:

It shows that the 2nd option is the clear winner in terms of total interest paid. I assume the variable interest rate for option one stays at 7.75%.

--Bill

I don't know where BankRate.com gets their numbers from, but the Freddie Mac Primary Market survey shows the average for this week at 6.16% with 0.5 pts. That'd translate to a touch more without the points.

Frankly, I trust Freddie's numbers more. And, in fact, Bankrate has, on another page ("Interest Rate Roundup") their _weekly_ survey showing 6.28% with 0.26 pts - much more inline with Freddie's numbers.

One expects their "daily rate" to bounce around a bit and diverge from the weekly one, but the full half-percent difference they're showing seems a bit odd.

Anyway, 6-1/8 to 6-1/4 sounds pretty normal right now.

Anyone thinking about getting a mortgage or refinancing, even people who think they already know a lot about how mortgages work, would be well advised to look at this website:

It is an excellent place to find information about the ins and outs of mortgages. It has saved me money by providing practical information. (The site is not provided by a lending institution, and there are no sales associated with it.)