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I'm exploring refinancing options and have two offers that I'm having a hard time deciding on:

Better.com

This is not my current lender. They are offering an interest rate of 2.375% for 1.866%. Because I'm paying points for the rate and have to re-fund my escrow, the cost of the loan is $16,700 roughly - this is all rolled into the loan. My total principal and interest savings in this plan would be $316/mo.

This plan would make my LTV about 93.56%.

Current Lender

They are offering and interest rate of 2.875% for no points. Since they already own my escrow, there is also no additional funding needed there. The total cost of my loan through them would be more along $4,000, again all rolled into the loan. My total savings in principal and interest through this plan would be around $280/mo.

This plan would make my LTV about 90.1%.

My Question:

What other considerations should I have when choosing between the two? I don't think I have a clear enough understanding of the long-term outcomes from these offerings and how they're different to make a confident decision. Is one noticeably better than the other?

For what it's worth, I expect us to be in this home for the next 5-10 years. My primary objective is to lower our monthly payments.

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    The escrow bit is pretty well irrelevant, if funding a new escrow you pay that at closing, but then after closing your existing escrow balance is distributed to you, so it's a wash. If the new escrow funding was rolled into your new balance you're paying interest on that amount of course.
    – Hart CO
    Nov 11 '20 at 20:36
  • I live in an area where the escrow is pretty high - my current balance is a little more than $8,000. My assumption was that this (along with the points paid) would affect my LTV pretty directly.
    – MrDuk
    Nov 11 '20 at 20:43
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    Say you have an $8k escrow balance, you close on your re-fi and they bake $8k for funding new escrow into your new mortgage, you'll get the $8k balance refunded from your original escrow, you could immediately pay that $8k refunded escrow to the new mortgage. So escrow is a wash unless you choose to keep the refunded amount and pay interest on the initial escrow balance over the life of your new loan. One other bit, are you paying PMI on your loan and would you be on the re-fi with both options?
    – Hart CO
    Nov 11 '20 at 21:00
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Since they already own my escrow, there is also no additional funding needed there.

Are you sure ? I did a 0/0 refinance with the same company and it didn't help at all. They fully closed the existing mortgage and escrow account and set up new ones for the refinanced loan. In fact, they were trying to screw me out of $2000 on the Escrow refund and I had to threaten legal action before they finally admitted their mistake (or fraud attempt). In my case refinancing with the same company actually made it harder since they mingled the papwerwork which made it hard to really track down the root cause of the discrepancy.

This being said, Escrow should make no difference here. It's your money not theirs. If you need to pre-fund your new escrow with $8000, chances are that your Escrow refund from the old mortgage will be roughly the same amount. Even if they roll the initial Escrow into the new mortgage balance, you can use the Escrow refund to immidiately payoff $8000 of the new mortgage.

That leavs the points decision. This depends really on how long you plan on keeping it. Inetrest rates are very low at the moment, so chances for a nother refinance are small so it's more about moving or upgrading. Break even point for yoou numbers is about 6 years. If there is good chance, you'll stay for 6 years or more, pay the points. Good tool: https://www.nerdwallet.com/article/mortgages/should-i-buy-points-mortgage-calculator

The LTV will indeed be higher for the points version but only by the points amount. This will diminish over time, i.e. after 6 years the LTV will be the same and then it will be better. If there is a specific threshold of LTV that's important to you (mortgage insurance, credit rating, etc) that you can pop the numbers into a spread sheet and check out how long it would take to reach your "target" LTV for either version.

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