In todays marketplace, should I be happy with a 3.75% interest rate and cash

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RyanW

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back on a mortgage? I'm buying my first home, so I'm having my first experience with getting a mortgage.

We are using a broker, and he's offered me 3.75% for a 30-year mortgage. This particular loan also includes 2 points back in the form of a credit I can use towards closing costs (which amounts to around $9,000).

There IS a better rate available to me (3.625%), but would require that I pay 1-1/2 points out of pocket. Sure, I can do the math, and understand over 30 years how this would be saving money, but the higher 3.75% rate with cash back seems more attractive at this particular point in time since money is tight as it is and I don't want to pay anything else right now.

Can someone explain to me why a bank would be willing to GIVE ME money in these circumstances? I know that money will be paid back to then 50-fold in the form of interest, but I still don't understand the logic. Is this a common practice?

Any help or guidance is GREATLY appreciated!
Thanks...
 
If they are fixed rate loans they are about the same, I don't think 0.125% extra will be that much more in a mortgage payment.

But based on your description of the loans, I would guess the 3.75% with 2 points back is an adjustable rate loan with a pre-payment penalty of, wait for it,... 2 points or more. That's one reason I can think of why a bank would offer 2 points back in a loan like that. Read the fine print.

While the other one at 3.635% with a cost of 1.5 points sounds more like a fixed rate 30 year loan.

I'd take the fixed rate over adjustable, rates will never be lower or at least much lower, I remember back in the 90's it was 8%-9% .
 
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