You Really Don't Want that 3% Rate for Your El Dorado Hills Mortgage

You’ve probably heard the ads.  It’s often for one of the major banks and the commercials go something like this:  “30 year mortgage just 3%!”  A few of my customers have heard these ads and asked me to match the rate for their El Dorado Hills mortgage.  I could but I don’t.  Here’s why…

What the banks don’t advertise is that you can only get that screamin’ low rate if you are willing to pay “discount points”.  One discount point equals one per cent of the loan amount.  I saw a quote last week that included 2 ½ discount points with a 4.5% interest rate so let’s use that for our comparison of a standard 30-year conforming loan.

If you wanted to borrow $200,000 at that advertised mortgage rate of 4.5%, the 2 ½ discount points (2 ½ percent of the loan amount) would cost you $5,000 in fees at loan closing.  Your monthly principal and interest payment would be $1,013.37.

Now, I could get you a very competitive rate of 5 1/8% on $200,000 and charge you zero discount points.  Think that higher rate translates into a much bigger payment?  It doesn’t.  The principal and interest payment on 5 1/8% is $1,088.97.

Do you really want to spend $5,000 for your El Dorado Hills mortgage just to save $75.60 per month?  It would take you 53 months to recover the cash you spent to get the lower rate!