How valuable is a tenth of a percent point on interest rate?
Current FHA at 4.375, looking to refinance my house. I have 2 competing offers, one company offering 3.875 but re-appraising the house to get me to 90%ltv which will eliminate MIP after 11yrs. The other offering 3.75 but not re-appraising, therefore MIP stays for the entire 25yrs. A conventional loan is not an option at this point to eliminate MIP now so these are my 2 options.
Edit - also worth noting, within 5yrs the house will be well under 80/20 and I'll be able to refinance to a conventional and eliminate MIP anyway, barring rates going through the roof.
Re: How valuable is a tenth of a percent point on interest rate?
Opportunity Cost and Time Value of Money theory analysis is the key here.
First, if you only plan on making minimum payments you want to decide if the extra cost (especially cash out of pocket today) is worth any long term savings compared to the opportunity cost of saving and investing any additional funds elsewhere.
Each loan comes with a ridiculously low APR so any monies invested in this appreciating asset you call home only generates a rate of return at the level of your APR. (the long term cost of your 'finance charges' for the loan) So the mistake you could really be making is only if you don't have other money being invested elsewhere (like the stock market) that generates an avg. rate of return in the 8-10% range.
So I'm sorry I can't help you figure this one out really....