Refinance or invest
I am not an expert in finances, so asking your advice in this. Planning to refinance :
current home value 350k in TX
Remaining months (152 months- almost 13 yrs)on current mortgage
Remaining balance 250k
Current rate is 3.625%
Should I refinance for 10 yrs at 2.625%
Plan to stay in this home for next 8-10 yrs
Upside is that We will be done with the mortgage ( almost 3 yrs earlier than now) by the time my son starts college
down side is 323$ extra payment per month
what do you recommend? If you suggest to instead invest 300$ monthly somewhere, pls suggest where to invest. Thanks a lot 🙏
Not enough information. The crucial piece is how much the refinance will cost you. Also, you need to compare apples to apples by looking at where your current loan will be if you make the same payments as the new loan would require. This you can do for free (without refinancing), would be paid off in 10.6 yr, and would save you $9.3k over your existing situation.
Assuming $3200 closing costs below, 0.5% savings account rate, and 15% tax rate (mortgage interest deduction), using this calculator...
10 yr/2.625% loan saves $11.5k total interest compared to your existing rate at the higher payment (10.6 yr payoff).
Breakeven on the refinancing is after 1.6 yr (again, assuming $3200 closing costs). (Even at $5k closing costs, breakeven is after 2.5 yr.)
Compared to your current situation, I think it makes sense to refinance IF you can afford the higher payment and IF you can do without the money for closing costs in the short term (until the breakeven point is reached). Investment thoughts in a bit...
The question of whether to refinance or invest is an entirely different consideration that will be down to your risk tolerance. While making a 1% return shouldn't require a ton of risk, there's still a chance of even negative returns. Arguably, the hardest part of the investment route will be continuing to make the contributions every single month.
If you are a smart investor and is able to make more than the interest you would pay by investing the money elsewhere, invest it elsewhere. If you are like me, where you are either not fully aware of how investing/growth works or afraid of putting more money in investing, put all the money on the house, because you would at-least save the money on the interest. I am sure from a peace of mind stand point, paid off home rates high in my mind. Hope this helps.