I received this yesterday from AlaMode.com
"If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Lock if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers. "
Â©Mortgage Commentary 2008
BTW, even 7 percent is below average. When I purchased my first home, we paid 18.5 percent interest for the first 3 years because we didn't know better. It makes a great story now.
The difference between a 6.25% ($6.16 per month per thousand) and a 6.75% ($6.49 per month per thousand) mortgage rate for a 30 year mortgage is $0.33 per month per thousand or $35/month as previously mentioned. That's based on a $106,000 mortgage amount. If you feel that you got a good deal, $35/mo or just slightly more than $1.00/day, in the long haul isn't too much. Remember that mortgage interest (most of the early years payments is still an approved (check with your accountant for your particular situation) tax deduction anyway. I like to think that you have purchased a home and a lifestyle. You say you really like the home, the question is will the $1.00 per day alter your lifestyle?
6.8% is about the going rate for someone with decent credit on a conventional or FHA loan. This is up about 1/2% in the last week alone, which stinks, but it's not the end of the world. Like Ed & Cindy said, it's about $35/month difference.
To be blunt, if $35 per month is a deal breaker then you should really step back and take a closer look at your finances and perhaps save up some more money. To put it in perspective, I'd love to be paying $3.50 for gas instead of $4.00, but none of us have that time machine either.
As far as buying down the rate, since you are buying a foreclosure and also stressing about rate movement my guess is you don't have an extra couple thousand bucks laying around, and if you do it's probably earmarked for furniture, paint, improvments, etc. Am I right?
If it takes you 11 years to recoup that upfront investment then I'd advise you to take the prevailing rate, hang onto your money, and if rates rebound consider refinancing. You could get a lower rate and perhaps reduce or eliminate PMI as well if the home appraises higher.
Another option you might consider is a 1/0 buydown. This is a variation on a traditional 30 yr fixed mortgage which locks in your rate fixed for 30 yrs but offers a discounted rate for the first year only. If your current lender doesnt offer this I'd be glad to walk you through it and see if it is the right program for you.
If you're losing sleep over this then you should lock in a rate ASAP, so you know exactly what you're dealing with. It doesnt sound like you are tolerant of any more risk in terms of the rate. What I always tell my customers when they are scrutinizing over whether to lock in a rate or not is to determine for yourself which situation would upset you the most - If you locked in today and rates dropped 1/2% before closing, or if you declined to lock in and they rose 1/2%. Ask yourself that question and act accordingly.
Best of luck,
That said, if it pushes the limit of what you can afford, then you need to consider it carefully. I agree that you should talk with your lender, and also you should talk with your agent before making any decision.
You have to determine how long you think you will be there before you decide to buy down. Hope this helps.
Realty Executives e-Group