Refinancing: Do I take the lower rate or the better LTV ratio?
I'm exploring refinancing options and have two offers that I'm having a hard time deciding on:
Better.com
This is not my current lender. They are offering an interest rate of 2.375% for 1.866%. Because I'm paying points for the rate and have to re-fund my escrow, the cost of the loan is ,700 roughly - this is all rolled into the loan. My total principal and interest savings in this plan would be 6/mo.
This plan would make my LTV about 93.56%.
Current Lender
They are offering and interest rate of 2.875% for no points. Since they already own my escrow, there is also no additional funding needed there. The total cost of my loan through them would be more along ,000, again all rolled into the loan. My total savings in principal and interest through this plan would be around 0/mo.
This plan would make my LTV about 90.1%.
My Question:
What other considerations should I have when choosing between the two? I don't think I have a clear enough understanding of the long-term outcomes from these offerings and how they're different to make a confident decision. Is one noticeably better than the other?
For what it's worth, I expect us to be in this home for the next 5-10 years. My primary objective is to lower our monthly payments.
(1)1 Comments
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Since they already own my escrow, there is also no additional funding needed there.
Are you sure ? I did a 0/0 refinance with the same company and it didn't help at all. They fully closed the existing mortgage and escrow account and set up new ones for the refinanced loan. In fact, they were trying to screw me out of 00 on the Escrow refund and I had to threaten legal action before they finally admitted their mistake (or fraud attempt). In my case refinancing with the same company actually made it harder since they mingled the papwerwork which made it hard to really track down the root cause of the discrepancy.
This being said, Escrow should make no difference here. It's your money not theirs. If you need to pre-fund your new escrow with 00, chances are that your Escrow refund from the old mortgage will be roughly the same amount. Even if they roll the initial Escrow into the new mortgage balance, you can use the Escrow refund to immidiately payoff 00 of the new mortgage.
That leavs the points decision. This depends really on how long you plan on keeping it. Inetrest rates are very low at the moment, so chances for a nother refinance are small so it's more about moving or upgrading. Break even point for yoou numbers is about 6 years. If there is good chance, you'll stay for 6 years or more, pay the points. Good tool: www.nerdwallet.com/article/mortgages/should-i-buy-points-mortgage-calculator The LTV will indeed be higher for the points version but only by the points amount. This will diminish over time, i.e. after 6 years the LTV will be the same and then it will be better. If there is a specific threshold of LTV that's important to you (mortgage insurance, credit rating, etc) that you can pop the numbers into a spread sheet and check out how long it would take to reach your "target" LTV for either version.
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