I just tested this multiple times, with many different permutations. It seems that for Daggers, it's absolutely better to craft them at B3 than B5. With Swords, it depends. These tests were all done at level 20.

For Swords:
Crafting at B3 gives a sword with 114-197 damage.
Whetstone at B3 increases to 126-218 damage.
Whetstone at B5 increases to 139-240 damage.

Crafting at B5 gives you one of two swords:
A: No mods, 139-240 damage. Using the Whetstone on this sword has no effect.
B: +1 Max AP, 101-175 damage.
For B, using the Whetstone at B3 increases the damage to 114-197 (same as crafted B3, but with +1 Max AP bonus). Using the Whetstone at B5 increases the damage to 126-218.

So it seems you need B5 in order to get the max damage (139-240) from a crafted sword. You also need B5 to get a 126-218 sword with +1 AP. However, you can get the same damage but without the +1 AP at only B3.

Also, crafting at B4 gives 108-186 damage, and whetstone makes it 120-208. So crafting and upgrading a sword at B4 is strictly worse than doing it at B3.

For Daggers:
Crafting at B3 gives you a dagger with 83-139 damage.
Whetstone increases it to 92-154, regardless of level (B3 or B5).

Crafting at B5 gives you a dagger with 79-131 damage plus some (mostly useless) bonus.
Whetstone increases it to 88-147, regardless of level.

So it seems like it's better to stay at B3 for daggers. Also, at B4, it's 79-131 damage base, 88-147 with whetstone. So crafting and upgrading a dagger at B4 is strictly worse than doing it at B3. Which is messed up.

[Edit: Typos, formatting]

Last edited by Rynasi; 16/09/14 11:48 PM.