How to choose between to bank loans

[Michael C.]

Hi everyone -

I would like to get your thoughts on deciding between two loan options. It’s a small loan amount but want to make sure I’m thinking about this the right way.

Loan amount - $110k

Option 1

Rate - 3.5% fixed

Term - 30 years

Amortization - 30 years

Points - 3%

Option 2

Rate - 4.75% fixed

Term - 12 years

Amortization - 30 years

No points

Fees and other costs are all similar. No prepayment penalty

My thought is the Option 2 is superior. The points are $3.3k, which is about 3-4 years of the different between the interest rates. But I get a 30 year term so avoid a repayment tower at year 12.

Proceeds would go to a down payment for an investment property financed w 30 year debt.

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I’d be grateful to get the BP community’s thoughts. Many thanks in advance.

- Michael