New Mortgage question

[lynnerself]

Haven't been here for a while, but have a question I could use advise on. I think I know the answer , but want some feed back.

We're buying a new house. 20 % down. After we sell our current house, we want to recast the mortgage and pay it down significantly.  Probably to as much as 80 % equity. Does it make any sense to pay points to lower the interest rate? I don't think so, since we would be paying points on money that would only be borrowed for a few months.

Any thoughts?

[haapai]

I think that you are right.  About seventy five percent of what you pay for points would be pretty much wasted. 

[busymom]

If you're going to pay it down by that much, I'd skip paying points.  On the other hand, if you were planning to keep the mortgage for 30 years, I'd offer different advice.  

[Rukh O'Rorke]

[lynnerself]

Well it looks like the builder/ lender is running a promotion that pays all our closing costs! So if they want to buy down the rate for me, great.

[schildi]

When they say paying your closing costs, I doubt they mean buying down the interest rate.
In your scenario, you shouldn't be buying points with your own money.

[Bonny]

Oct 11, 2023 19:54:42 GMT -5 lynnerself said:

Well it looks like the builder/ lender is running a promotion that pays all our closing costs! So if they want to buy down the rate for me, great.

Ask if you can get a discount and pay your own costs if they are actually going to buy down the rate. Since you plan on paying the balance down within months you will likely save $$$ if the builder is going to buy down the rate for a number of years.

[lynnerself]

This is a special that the loan company who is associated with the builder is running. I'm not messing with it. We are getting a 6% rate (30 year fixed, conventional), which is pretty amazing and credits that off set all of our closing costs, including the points.

[Bonny]

Oct 12, 2023 19:43:55 GMT -5 lynnerself said:

This is a special that the loan company who is associated with the builder is running. I'm not messing with it. We are getting a 6% rate (30 year fixed, conventional), which is pretty amazing and credits that off set all of our closing costs, including the points.

Well back in the early 80s with interest rates in the 18% range one of the builders was buying down the loans for 30 years in the 12% range. If a buyer didn't want the buy-down they got something like a 20% discount on the full price of the house...not just the loan amount. Since you are only talking a couple months I'd ask. It doesn't hurt to ask. Still will need to do the math to see if it makes sense.

Good luck!

[TheOtherMe]

I have bad memories of those 18% loans and doing multiple refis to get it down to about 9%

[bean29]

When we built our house, the loan product was an adjustable loan during draw period, then you locked the rate and it became a conventional fixed loan. Maybe you could find a similar loan product? Then you wouldn’t need to refi, just wait for house to sell before you lock the rate?

[lynnerself]

The rate that is locked in is almost 2 % less than other lenders. And because it is a "sale" or incentive, I doubt there is any negotiation. Other lenders told me they can't come close. The offer/ contract is done and the new loan conditional approved. Trying to decide when to list our current home.

[phil5185]

After we sell our current house, we want to recast the mortgage and pay it down significantly. Probably to as much as 80 % equity. Does it make any sense to pay points to lower the interest rate?

To me, that mortgage capital locked in at a 6% fixed rate for 30 years, is golden - I wouldn't even consider prepaying it.  

Depending on your age, number of heirs, etc, that money could be put to work elsewhere. One suggestion would be an SP500 Index fund, historically it grows by a factor of 23 over a 30 year period.

[lynnerself]

Only problem with that plan is that  we would be pulling money OUT of retirement accounts (and paying taxes) to be able to meet the monthly mortgage payments.

We have lots of capitol invested in index funds, but are retired and no new money going in. Need a monthly payment that is sustainable with our income.

[phil5185]

What are you doing with your RMDs each year? We use the RMDs and our SS for living expenses.

[lynnerself]

Oct 23, 2023 12:39:28 GMT -5 phil5185 said:

What are you doing with your RMDs each year? We use the RMDs and our SS for living expenses.

We're still a couple years from RMDs. The RMDs will replace the current draw down and withdrawals that go toward travel and gifting. SS, pension and annuities meet

all basic living expenses.

Don't worry Phil, we've got it well planned. We were heavily in the market during work and still have a healthy percentage there. This is the first home purchase in 20+ years, so just working through some of the details.

[lynnerself]

Closing today! Should get keys at 2pm. Rate locked at 6% and they paid all closing costs. Rude surprise with estimated property tax. Almost double what we thought. Something to do with new homes vs/ older homes with rate increases limited by law.

Our house listed yesterday. Market is pretty slow right now however.  

Hope to be moved into new house by mid December.

[busymom]

Sorry about the property tax "surprise".  My old neighborhood in FL got a similar surprise this year.  

[minnesotapaintlady]

Nov 30, 2023 12:46:05 GMT -5 lynnerself said:

Closing today! Should get keys at 2pm. Rate locked at 6% and they paid all closing costs. Rude surprise with estimated property tax. Almost double what we thought. Something to do with new homes vs/ older homes with rate increases limited by law.

Our house listed yesterday. Market is pretty slow right now however.  

Hope to be moved into new house by mid December.

Initially the taxes are based only on the raw land which probably has very low taxes (I pay $18/year on a 10 acre parcel)  Improvements (like adding a house) often can only be slowly phased in when assessing property taxes.  New build people get burned on this all the time.

[The Walk of the Penguin Mich]

Nov 30, 2023 12:58:00 GMT -5 minnesotapaintlady said:

Nov 30, 2023 12:46:05 GMT -5 lynnerself said:

Closing today! Should get keys at 2pm. Rate locked at 6% and they paid all closing costs. Rude surprise with estimated property tax. Almost double what we thought. Something to do with new homes vs/ older homes with rate increases limited by law.

Our house listed yesterday. Market is pretty slow right now however.  

Hope to be moved into new house by mid December.

Initially the taxes are based only on the raw land which probably has very low taxes (I pay $18/year on a 10 acre parcel)  Improvements (like adding a house) often can only be slowly phased in when assessing property taxes.  New build people get burned on this all the time.

And location.  The empty, wooded lot next to us is taxed at nearly $3000/year.  This lot is about 6x the house lot size, which is taxed at over $5000.

[minnesotapaintlady]

Nov 30, 2023 13:19:38 GMT -5 The Walk of the Penguin Mich said:

Nov 30, 2023 12:58:00 GMT -5 minnesotapaintlady said:

Initially the taxes are based only on the raw land which probably has very low taxes (I pay $18/year on a 10 acre parcel)  Improvements (like adding a house) often can only be slowly phased in when assessing property taxes.  New build people get burned on this all the time.

And location.  The empty, wooded lot next to us is taxed at nearly $3000/year.  This lot is about 6x the house lot size, which is taxed at over $5000.

But I'm guessing it would be taxed a lot more with a house on it.

[lynnerself]

The best I understand it is this:

State law says taxes can only increase so much % a year.

So say my current house that I have been in for 20 years is now worth $500,000. But my taxes may not reflect that value.

The new house, also worth $500,000 is taxed at the full rate. So much more.