Author Topic: Mortgage Refinance Question - tap emergency funds?  (Read 3423 times)

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  • Bristles
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Mortgage Refinance Question - tap emergency funds?
« on: March 23, 2016, 11:52:09 AM »
We bought a house last year - rate was 3.5% on a 15 year. We are a jumbo loan.  I am in the midst of a refi with no origination fee at 3.1%.  If I paid down the loan to under $417k - approximately $32k as of right now, I could qualify for a 15 year at 2.875%.

To do that, I would have to burn a big chunk of my cash emergency fund, but that would reduce my monthly outlay by $576, which I could use to rebuild the emergency fund.

To put it into exact figures.

Refi @ 3.1% as is, reduce payment by $305
Refi @ 2.875%, burning up the emergency fund, reduce payment by $576 a month.

I have about $25k in a taxable investment account as well.

Not interested in a 20 or a 30 year, want to stay with the 15 year, so with that in mind what would you do - would you cash out the emergency fund for the lower rate/payment? 

Gin1984

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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #1 on: March 23, 2016, 11:53:44 AM »
How much would you have to pay?

neo von retorch

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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #2 on: March 23, 2016, 11:56:00 AM »
This might spark yet another mortgage payoff vs. investment debate, but this is really just a spin on asset allocation.

* Cash
* Real estate
* Investments

Are you comfortable decreasing your substantial cash allocation in order to increase your real estate allocation?

Mother Fussbudget

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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #3 on: March 23, 2016, 12:38:39 PM »
My answer would be:  Yes

Home values generally keep up with inflation - cash value in a checking / savings account does not.

Q:  How many months would it take to rebuild the EF at $576/month?

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  • Bristles
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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #4 on: March 23, 2016, 12:53:28 PM »
$3k in closing costs, which I would cash flow. 

Would have to come up with $32k, and I would tap $20k in cash, and cash flow the rest - I over funded my tax account (self employed). Rebuilding the emergency fund after would probably take me six months, unless I put off retirement for a few months, then I could rebuild in maybe 3.5 months.

nobody123

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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #5 on: March 23, 2016, 01:24:07 PM »
You're saving cashflow, but adding a year to the mortgage. I'm making the assumption you want the 15 year loan to pay it off as quickly as possible.

Since you are a year in, I would recalculate each of the refi options as 14 year loans and compare to the current payment amount. 
Based on the info you provided, I guesstimate your payment now is $3431/month, option 1 for 14 years means a $3298 payment, and option 2 for 14 years is a $3018 payment.  So, you can add about $413/month in cash flow by paying down the $32K, and you'd replenish your emergency fund in about 6.5 years.  You'd then be able to redirect the extra $413 towards the mortgage, allowing you to pay it off in 156 total months, or in 13 years.

If you're comfortable with allocating your EF for this opportunity, do it.  Since you have $25K of the $32K available in the taxable account and you would make up the $7K difference in about 17 months, I would probably roll the dice.  YMMV.


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  • Bristles
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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #6 on: March 23, 2016, 01:39:38 PM »
This is spot on in terms of your math, and really helped me to think it through it more apples to apples. 

Just having a little bit of a heart palpitation in terms of cashing out the EF.  On the other hand, just a few years ago, I couldn't even spell EF. 

nobody123

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Re: Mortgage Refinance Question - tap emergency funds?
« Reply #7 on: March 23, 2016, 01:57:13 PM »
This is spot on in terms of your math, and really helped me to think it through it more apples to apples. 

Just having a little bit of a heart palpitation in terms of cashing out the EF.  On the other hand, just a few years ago, I couldn't even spell EF.

I didn't see your other reply before I posted, but if you can rebuild your EF using funds other than the mortgage savings in that short of a time, I would definitely do option #2.

 

Wow, a phone plan for fifteen bucks!