Mortgage Rate Options vs. Lender Credits vs. ?

[Quinten Sepe]

Hey All,

My mortgage broker got back to me with three options for our fee summary and amortization schedules.

Option 1:

Interest rate: 3.875%
Lender credit: $340.52
Total cash from borrower: $7,082.68
Total monthly payment: $934.36
APR: 5.276%

Option 2:

Interest rate: 4.000%
Lender credit: $875.45
Total cash from borrower: $6,552.67
Total monthly payment: $942.82
APR: 5.395%

Option 3:

Interest rate: 4.125%
Lender credit: $1,342
Total cash from borrower: $6,091
Total monthly payment: $951.34
APR: 5.513%

I'm initially inclined toward the lowest interest rate, but given that I can write the mortgage interest off (up to 1mil), is it better to take to larger lender credit?
Is there a key component that I'm not considering?

Thanks for your help!
-Q

[Mark F.]

@Quinten Sepe  The key missing ingredient is time. How long do you plan on keeping the loan? Obviously, nobody can predict the future, but if you're likely to have the loan for a long time, the lower rate options can often make sense because the lower rate eventually makes up for the higher up front closing costs. If you're not planning on keep the loan very long, you usually want to keep your costs lower, which means you probably want to take a slightly higher interest rate.