Toll 3.99% Mortgages – What’s the Catch?

by Darwin on January 21, 2009

Will 3.99% bring out the buyers?

 Toll Brothers (TOL) announced today that they are offering 3.99% fixed mortgage rates for 30 year mortgages for homebuyers that meet certain provisions.  A 3.99% interest rate is the lowest I’ve come across, as national mortgage rates briefly dipped below 5.0% last week, before dipping up again this week.  Rates are widely anticipated to continue lower given the recent actions by the Fed and Treasury. 



For homeowners looking forward to taking advantage of the Toll Brothers deal, they must meet the following criteria:

  • Homebuyer FICO must be 720 or higher (Click Here
    for official originator, info on FICO scores)
  • A down payment of 20% is required
  • This applies to conforming loans which are $417,000 or less for no points

To illustrate how beneficial this mortgage deal is to prospective buyers, let’s say you’re buying a new Toll Brothers house and you need to borrow the maximum $417,000 (it should come as no surprise that Toll houses are typically 500K and up in the markets they serve).  If you were able to strike a great deal on a house today at 5.0%, which is slightly less than the national average, you’d incur the following mortgage payments:

$417K @ 5.0% =

$2242 monthly payment
$390K in interest paid over 30 years
$807K total paid over 30 years

 $417K @ 3.99% =

 $1992 monthly payment
$300K in interest paid over 30 years
$717K total paid over 30 years

This translates into monthly savings of $250/month or $3000/year, excluding tax benefits (early in the mortgage most of the payment is interest due to amortization, of which the interest piece is tax deductible) and the additional mortgage inclusions like insurance, real estate taxes, etc.  While I showed the total amount paid over 30 years, don’t focus too much on that since we’re talking present day dollars here and I don’t mean to overhype the importance of total savings in future dollars.  At 3.99% mortgage interest rates that you can write off (perhaps now a 3% effective rate), this is surely lower than your discount/investment rate.  In that context, these future dollars are meaningless since you’d actually earn more than these seemingly large numbers in a high yield account or possibly, the stock market.

These are provisions that obviously weren’t adhered to during the heyday of the past decade, but perhaps with these rather standard (by historical measures) provisions now enforced, Toll can gain some traction in unloading some inventory in the high end home market.

Some Considerations and Predictions:

Buyer’s remorse:  Remember all those people that went out and bought a car during the summer because the manufacturer was offering all the gas you could buy for $2 when gas prices were at $4?  Now, gas prices are below $2, so the whole notion of saving money on gas was in retrospect, a poorly timed bet.  If interest rates continue to plummet and people rush out to buy a new Toll Brothers house to get this deal (while perhaps overextending themselves just to get into a luxury home), it will be really frustrating to see 4.25% rates as a national average whereby buyers had the time and opportunity to buy any house, new or used, from any builder, on their own timeline and comfort level, for a mere .25% over this rushed decision.

Free Market Competition and no good idea goes unnoticed:  If other homebuilders start to see some action in the luxury market and Toll is taking market share while their inventory sits idle, what’s to keep them from following suit?  Perhaps this could turn into the next in one-upmanship that we saw with US automobile financing – massive incentives, zero interest, etc.  I’m not calling for zero interest on 30 year mortgages, but perhaps you end up seeing multiple builders offering the same rate within the next 6 months.


Reader Followup:

I’d like to hear back from any readers who are considering taking Toll up on this deal.  Are the terms and conditions as initially indicated?  Were you able to land the deal?  Any strings attached? 

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{ 2 trackbacks }

Carnival of Money Stories No. 94
January 27, 2009 at 9:20 am
Moments of Fame « Funny about Money
January 28, 2009 at 12:36 pm


1 rb January 22, 2009 at 1:13 am

link to the toll website to get this rate???

2 Darwin January 22, 2009 at 8:10 am

It was a public announcement and widely reported in the press, but I don’t see a link on their site just yet. Here’s a wsj article with a brief on it; I added much more background/commentary:

3 David B. January 22, 2009 at 8:49 pm

I checked out the website. I’d be more interested if Toll had something that I wanted to buy. Overwrought 40-gabled barns out in the far ‘burbs that will cost a fortune to heat/cool aren’t it.

4 Timur I. January 27, 2009 at 4:03 pm

Great! Thank you!
I always wanted to write in my site something like that. Can I take part of your post to my blog?
Of course, I will add backlink?

Sincerely, Timur Alhimenkov

5 Darwin January 27, 2009 at 4:54 pm

Sure, snippets of content properly attributed is no prob whatsoever; thanks for spreading the word about Darwin’s Finance!

6 Darwin January 27, 2009 at 6:53 pm
7 Funny about Money January 28, 2009 at 12:16 pm

Nineteen hundred and ninety-two dollars a month? That’s more than I bring home in a paycheck…and it looks (once again!) like I’m about to be laid off. My salary is well above the median. Who has that kind of money?

Paying more than half your income for a roof is dangerous and ill-advised. House prices will need to come down before most of us can afford to buy these palaces.

8 rewImmurb February 5, 2009 at 5:10 pm

Your site displays incorrectly in Firefox, but content excellent! Thank you for your wise words.

9 Darwin February 5, 2009 at 8:08 pm

Firefox display – I seem to have mixed results in Firefox/IE each time I try a new template in blogger or WordPress. In this case, I don’t notice anything in particular.

Can any readers please comment on errors they see in the template in Firefox? Would appreciate the Feedback.


10 BadBoysDriveAudi April 22, 2009 at 7:55 pm

At that rate and payment, I’d be tempted to relocate from Alaska and telecommute full time. Of course, I’d have to weigh the property taxes and tax requirements of the state and municipality of where these homes are being built.

Thanks for the information!

11 kibertronik May 23, 2010 at 5:07 pm

Your site displays incorrectly in Explorer, but content excellent! Thanks for your wise words =)

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