Trying to interpret Lender Credits

[trickofthetail]

Hi everyone,

First time home buyer here. Two physician loan offers:

Bank A: 2.625% with no points. (Trying to lock this)
Bank B: 2.875% with .25 lender credit. By opening a "...$25k CD this would be 2.75% with .125 lender credit, or 2.625 with .5 fee."

I put the second part in quotes because that's exactly how the lender wrote it. Trying to interpret what's going on there.

I think I have a basic understanding of lender credits vs points (tradeoff between cash up front versus interest rate over long term), but:

- What I'm trying to figure out is whether I decline the lender credits to get a lower rate with Bank B without points?
- Or am I forced to choose between the lender credit or paying the .5 point to get their rates to match at 2.625?

I have already calculated the difference in monthly payments between the banks and the break even point by those paying points is 6.3 years. So the comparison will be closing costs, and there is also a bit of a time crunch and bank B is moving faster than bank A.

Thanks for your insight.

[StarTrekDoc]

Welcome OP -- If this is 30year - both a pretty good rates and splitting smaller hairs --- you pointed out -- the fees will be crucial. Some banks pad thousands into 800 level junk fees -- get an official GFE from both to really compare the finer points.

Then lock and closing times. Inhouse underwriting can be crucial too for time sensitive closings -- really depends on your financials and how complex the funding/income sourcing is.

[EntrepreneurMD]

You're looking at the wrong numbers. Compare APR, not rates for clarity.

If you like Bank A's offer and Bank B is moving faster, ask Bank B to match bank A's offer. Especially given that rates dropped to new lows today.

Mortgage rates sink to 2.66% — a new low — on Christmas Eve (yahoo.com)

[trickofthetail]

Thanks for the tips so far. I forgot to add that most of the reason for asking is for my own education over anything else, despite the accurate point made above that his is splitting hairs.

Bank B is indeed moving faster on a 30 year fixed loan, and the estimate above already reflects their response for a rate match to Bank A. I believe we will live here long term, but we never know, so I'm not wild about paying down the rate with points.

Good point in comparing APR
. Unfortunately, though, we are in early escrow and the banks are wildly off in terms of their estimated settlement and other fees, and one loan estimate includes many points while the other has none, so the APRs are wildly different. The lender fees themselves are fortunately not too far off.

To ask my original question differently:

Based on the information above, can we tell what would be the interest rate for Bank B with a $25k CD but no points and no lender credit? Or do they not appear to be offering that option to me?

[Tangler]

Points and fees get confusing.
I think they intentionally make it that way to sneak some extra fees in.
I would pick the one with no points.
I am not a fan of debt, but a reasonable mortgage is a reasonable thing. Those are really low rates. perhaps as low as they will ever be. Pull the trigger.