First time home buyer here.

I need help deciding between two options to buy my first home.

Some base information:

My wife and I have almost no debt, high 750+ credit scores and good paying jobs. We also have about 40k in savings all in.

The area that we are looking to buy you need to spend at bare minimum 300k for a decent house that you wont start out upside down on from an equity perspective.

My two options for mortgages:

Option A:

30 year fixed mortage at 6%, will only need to put 5% down but the payment could be close to $2700 a MO, 1700 if I put the full 20% down. Refinancing is free the first time then costs 2k after.

Option B: A 25 year 72 month balloon at 4.28% offered through my company. Minimum 20% which would require a "gift" from the in-laws to afford. At first glance I saw balloon and disregarded the option. Then I keep hearing from multiple people at my firm who have taken the option and absolutely love it. Few interesting things:

Apparently the company I work for created its own credit union for the sole purpose of helping its employee's and offering rates at or below cost.

1. Over the last 20 years, the interest rate has never been higher than 5.9 percent, and has been as low as 1.9 percent
2. Its free to "refinance" as often as you want because you're just changing the terms of the loan
3. You can pay on the loan weekly and more of your payment goes to principal
4. no closing costs

When comparing both options I ran the numbers and 30 years at 6%, $1700 per month on a 300k house, I will end up paying an additional $347,000 in interest over the life of the loan.

While if I take the 4.28 percent balloon deal, I have an option to pay $400 a week and pay off the loan in just 22 years and only pay $159,000 in interest. (obviously that's assuming I will have a few contracts over the years with higher interest, and a few with lower)

Has anyone had a similar experience or can give me some direction?

T's and G's

1. Irrelevant. We're in a rate rising environment and it's not stopping soon. Most of the last 20 years was in a rate slashing environment with competition oversees getting to negative rates. Those days are gone now.

2. Nothing is ever free. In this sense, you are locking up with them for an additional 3 years each time you do it. And if rates happen to be higher than where they are today, congrats.. you just committed to losing a ton of money every period because you weren't locked in with long term debt at a fixed rate.

3. Please provide more details. As you've described it, you are paying over a 25 year amortization which sounds like more of the reason why more is going to principal than over a 30 year AM.

4. Sure. Because they want your money and this is their concession to you to get it.

It doesn't sound like a bad deal, but I wouldn't do it unless you feel strongly that rates will be near or lower than where they are today in 3 years. Otherwise you are signing up for pain.

Also, can you post the language in the agreement with your companies credit union on what happens to your loan if you get fired/terminated and/or leave the company on your own?

I can't imagine them being happy making less than market rate on someone who doesn't provide value to them.

Understand a balloon means the loan is due in full at the end of the period. So, as you mentioned you can refinance but I assume the refinance is credit qualifying? What I mean by that is if you have to have certain credit scores and certain debt to income ratio to get said refinance. The risk is of course something happens financially with a job lose, sickness etc that lowers your credit score or ups your debt to income ratio you could be forced to sell if you cannot get the refi.

Another question would be why would your payment got from 2700 with 5% down all the down to 1700 with 20% down? The extra 15% would not effect your payment nearly that much. (you rate should likely be lower then 6% with 5% or 20% down on a 30 year fixed.) if it is because the 5% down is requiring escrow for insurance/taxes and the 20% down is not understand that you will still have to pay the same. Insurance/taxes do not go away just because you are not paying per month.

How long do you expect to be in the house? If you're like most first time buyers the rate in 2052 is probably irrelevant.

You could also use a realtor that splits their commission with clients. You could use the buyer rebate to help buy down your rate, pay for closing costs, or bring down the purchase price. My info is in my profile if you have any questions.

jja79 said:

---

How long do you expect to be in the house? If you're like most first time buyers the rate in 2052 is probably irrelevant.

---

This is always the question I would ask first time home buyers, especially married couples without children that plan to have some soon. Often times, the first house is a starter with plenty of room for you and your spouse. But odds are that once kids come into the picture, you'll be looking at upsizing in the not too distant future. Consider the timeline for this in deciding your loan terms.

I guess the credit union doesn't have people on staff who can answer these kinds of questions?