Subscribe to Answers
I would think the assumable would be the way to go.....the closing costs would be minimal....plus 8 years of interest saved....
Gary L. Waters Broker ...
Get an opinion from a lender who does not have any skin in this.
I'd say this depends entirely on the new loan type - if the client uses a current market mortgage, would it be conventional or FHA? If FHA, the permanence of the PMI will offset the lower rate benefit. If conventional, this makes the options more interesting and probably wise to include their financial advisor re: retirement. Mortgage debt is good debt - if the monthly savings from a 30 year loan at current rates would allow them to plan for the future better, then I'd suggest that route. If that side of it doesn't matter and they're happy with the payments of the current loan (and they can get rid of the PMI if there's any left on there), then the assumable loan could be a good option, too.
Encourage her to talk to another lender and ask the first lender to lay out. The total interest payments over the next 22 years
That's a tough one. The length of time the buyer expected to live there would also need to be considered. If it was less than 5 I would say definitely assumption.
Have to examine her goals and do the math.
At first glance, the new one with a lower interest rate. But, most likely the assumable one has just a few more years of mortgage insurance premium whereas the new one would have the MIP for the entire 30 years. To make the best decision is to calculate the principal and interest and the MIP for each scenario.
The rate is higher than current rate by a significant amount. They can make extra payment a year and knock the length of the new loan down easily. Reason most buyers go with FHA is low down payment. This doesn't sound as if that is the scenario here.
What's the principal remaining on the assumable loan and does the buyer have enough down payment to cover loan amount and purchase price ? If not then a new fha loan would be better.
I would need to see the breakdown, but I'm guessing a new mortgage would be a better option and just add a little to the principal payments to make it pay off even quicker.