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To evaluate two options, we need to subtract the monthly payments and the rebate (amount paid by the lender towards the closing costs). 

In our example:

 Rebate difference   = $4,566

 Monthly payment    =      $45

 Tax adjustment       =      $34


$4,566 / $34 =  $134.29

$134.29 / 12 months = 11.19 years to break even

 

It will take over 11 years to have the benefit of a lower rate. At the same time, if the extra $4,000 is used to pay off a credit card at 22% or even take a vacation, the benefit of the higher rate with the bigger rebate will be even more significant. For different folks—different strokes.


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Cheers,

Manny
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