Comparing a 2.74% three-year fixed quote on a $410,000 New York purchase

O

OrlaIves

Buyer
Established
I’ve checked the quoted payment and lender charges, but I still cannot tell which comparison best reflects my likely three-year horizon.

The purchase is around $410,000 in New York, and the quote fixes the rate at 2.74% for three years. The initial headline looked cheaper; once the applicable loan-to-value band and setup charges were applied, the saving narrowed.

Should I compare cash paid by the end of year three and the remaining principal, rather than relying mainly on APR? The payment difference is modest, so early-repayment costs, genuine portability and the terms after the reset may decide it. I do not want the calculation to depend on refinancing being available on favourable terms.
 
For a three-year decision, I would calculate total payments plus lender fees over those three years, then subtract the principal repaid. Also compare the remaining loan balance at the end. APR is useful, but it may not reflect your actual holding period or exit plan.
 
What exactly happens after year three? Is the loan amortized over a longer term with only the initial rate fixed, or is there a balance due? That detail matters more than a small difference in the opening rate.
 
I would not dismiss APR, but I agree it should not be the only figure. Put every quote on the same assumptions: purchase price, down payment, loan amount, payment schedule and expected payoff date. Otherwise the loan-to-value tiers and fees make the comparison misleading.
 
The weak point in a three-year comparison is the refinance assumption. If you cannot refinance on acceptable terms then, what rate-setting method applies, and can the resulting payment still fit your budget? I would model that before assigning much value to the 2.74%.
 
Are the arrangement fees all lender charges, or does the total you received mix them with other purchase costs? Only the charges that vary between lenders should drive the lender comparison. Keep costs that would arise with either loan in a separate column.
 
Portability also needs a precise explanation in writing. Does it mean the existing rate can move to another eligible property, or merely that you can apply for a replacement loan without one particular charge? The word itself is not enough to value the feature.
 
Month 36 is the condition that drives the comparison. List the cash needed at closing, every payment made during the fixed period, the principal still outstanding and any charge for repaying or replacing the loan at that point.

Then run a second case in which you move before the three years are up. Ask each lender to confirm in writing which early-exit and portability costs apply in both cases.
 
@leila_devries is asking the key question. I would not accept “three-year fixed” as a complete description. Emma, ask the lender to spell out the full repayment term, what changes after three years, and whether any early-repayment charge ends on the same date.
 
One caveat on total three-year cost: it favors whichever scenario you assume at month 36. If one quote has a higher fee but materially better terms after the fixed period, a hard three-year cutoff could undervalue it. Compare both refinancing and keeping the loan.
 
I would add a third scenario: refinancing is available, but moving to the new loan has fresh costs. A projection that assumes a free, frictionless refinance can make a short fixed period look safer than it is.
 
The break-even calculation may be enough if the only difference is rate versus arrangement fee. Divide the extra upfront cost by the monthly saving, then see whether break-even occurs before you realistically expect to repay, refinance or move. Flexibility still needs separate treatment.
 
Make sure the competing quotes were prepared using the same loan amount and loan-to-value band. I would also compare them close together in time, because an older advertised rate and a current personalized quote are not necessarily comparable.
 
Since Emma says the monthly difference is small, I would lean toward the cleaner exit terms rather than chasing the lowest displayed rate. But only if the payment after the fixed period is understandable and affordable; flexibility before year three does not remove rate-reset risk afterward.
 
Affordability deserves its own test, separate from “best value.” Work out the highest payment you could manage without relying on a future refinance. The cheaper three-year option is not necessarily safer if its later payment can reset beyond that amount.
 
I am less convinced portability deserves much financial value here. It can sound attractive, but its usefulness depends on moving during the relevant period and satisfying whatever conditions apply then. I would treat it as a tie-breaker unless the written terms are unusually clear.
 
@jack.bakker Fair point, although an early-repayment charge could have a definite cost even when portability has uncertain value. I would compare the charge for leaving at several plausible dates. That exposes whether the apparent flexibility exists throughout the three years or only near the end.
 
There is now a practical shortlist: clarify the full term and post-year-three rate mechanism; separate lender fees from common purchase costs; calculate cash cost and remaining balance; test early exit dates; and model both keeping and refinancing the loan. That should make the small monthly difference easier to judge.
 
One final item for Emma: ask whether the 2.74% depends on maintaining the quoted loan-to-value through closing. If the valuation or down payment changes, the tier may change too. Compare the alternatives again using the final loan amount rather than the $410,000 purchase price alone.
 
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