Refinance or invest

Hi,

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 🙏 
 

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  • 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...

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    • dakinemaui 

      thanks. My refinance company agent told me no closing costs for me ( they will take care of it) , I can afford the extra 300$ payment. So, comparing between  refinancing with no closing costs at 2.625% for 10 years  and  making extra payment every month or year ( same amount) , the refinancing saves more money.

      i am also looking for resources to hunt for lower refinancing rates if anyone knows, pls share , thanks

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • Reported - view

      Maroon Cornet Yeah, at $0 closing, it's just down to the hassle factor. Bankrate.com shows rates as low as 2.0% / 10 yr. for $1600 up front. 2.125% for $0 up front.

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    • dakinemaui 

      thanks, i went on bankrate.com and its showing 2.6% for 10 yrs refinance. Can you PM me the link or post the 2% for 1600$ upfront. I am interested in that.

      thanks

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • Reported - view

      Maroon Cornet It's a fluid situation to be sure, and I don't see that rate any longer either. In fact, the lowest rate shown has gone up 0.5% since I looked when starting to type this response! In retrospect, a lot will also depend on your location. (I just used my state before for a quick look, thinking it would be somewhat representative.)

      The last time I refinanced, I used a mortgage broker who watched things for me. When rates dipped down to where I was interested, they gave me a call, I said "yes, go", and we locked.

      If you're serious about doing this "soon", then having them run a credit report now will save time during the lock. I missed out on a great rate because rates changed in the few minutes that was happening. Fortunately, rates dropped back down 3-4 weeks later, and I managed to get that same rate. (Credit pull was still valid.)

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  • 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.

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  • Trying to make a pretty chart comparing your options...

    How much was your original loan for?

    If you just made payment #208 and have a remaining balance of $250,000 on a 30 yr at 3.625% the loan amount on 6/1/03 was $450,000? But your current home value is $350,000. What's the missing info?

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
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      Owlette I'm interested in seeing your chart, but I'm not sure of the relevance of the original loan amount. Anything before today is water under the bridge. Shouldn't the comparison be between the various options on the table today?

      FWIW, I agree if the original loan was 30 years, then that initial principal would have been $450k. If the original loan was 20 years, it would have been $350k. (Both assuming no extra payments toward principal.)

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  • Sorry, I was not clear. The original loan was 304,552 for 30 yrs in 2014 at 4.5%. We refinanced in 2018 for 15 years at 3.625% for 284,982 balance. Now, we have 152 months ( almost 13 years left ) for the current mortgage. Thanks for your helpful efforts. Really appreciate it. 

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  • 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.

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    • BigFanofRacing 

      thanks. Thats a great advice. I am like you and dont know much investing. But I am trying to educate myself and learn about investing. 

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  • The only other thing to keep in mind here is mortgage interest can be written off on your taxes, it's not as bad of debt as credit cards or other types. Since you're planning on staying in your house so long, it probably makes sense to refinance though.

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