Refinance Our Mortgage/How Are We Doing?

[MrROB]

Hey everyone,

I am hoping to get some sage advice from the group. I am thinking about refinancing our mortgage, but going from a 10 year loan to a 25 year or 30 year loan to create extra cash flow so we can increase our savings rate and reach FI quicker. At the same time, I like the idea of paying off our mortgage in a few years. Although I do not think this is our forever home. I would like to move in the future. That move would either be to a better school district and/or we might move back to our home state to take care of our elderly parents.

Another wrinkle to add is that we don't have children yet, but we are in the process of private domestic adoption. I have the money set aside for the adoption (30k) but there might be additional expenses when that kid comes along (child care).

I also would like to know how you think we are doing. I know there is a LOT to improve upon. We need to tighten our budget in spots (and I appreciate some thoughts on that as well). Are we on track for FI within 10 years? Am I nuts to think so?

Here are some numbers:

Income:
Mine--90k (81k base salary and extra duties add about 9k)
Wife--45k

We save about 30k a year for investments. I am mandated to contribute 10% of my salary to a 401a (4.3% match), I max out a 403b, and my wife just started contributing at 10% of her salary (no match).

Assets:
401a--$224k
403b #1--136k
403b #2--$300 (she just started like last month)
Roth IRA--$40k
IRA--$5k
House--$260k
Savings--$32k (includes money for adoption)

Liabilities:
Mortgage--126k (2.875% interest rate--9 years left)
Home Equity Loan--$29,500 (4.125% interest rate--10 years left)
Student Loan #1--$57k (4.5% interest rate)
Student Loan #2--184k (6% interest rate)
*We are on the public service loan forgiveness plan (PSLF). Student loans forgiven for me in 2 years and 5 for my wife.

Monthly Income $7000

Monthly Budget:
Mortgage--$1300
Home Equity Loan--$350
Student Loan #1--$363
Student Loan #2--$999
Property Taxes--$305
Car Insurance--$175
Home Owners Insurance--$100
Pets--$125
Utilities--$350
Cable/Internet--$175
Netflix--$10
Gym--$21
Phone--$190 (we are leasing our phones...I know stupid)
Car Repairs/Maintenance--$200
Home Repair/Maintenance--$200
Gas--$350 (we both have 45 minute commutes each day)
Healthcare--$200 (medications and copays)
Food--$1200 (yes BIG face punch here....it used to be $1500 per month...trying to down further)

Total: $6413

That gives us about $500 extra each month.

So I guess I am wondering what your advice would be about the home refinance and how you think we are doing. If I were to refinance I can get a 4.5% interest rate at my credit union with no closing costs. I hate to give up 2.875%, but it would consolidate our loans and reduce our payment from $2100 a month or so to about $1300. That gives us $800 more per month to put into investments.

Also, I know for FI we are pretty far behind compared to others. I am wondering if you think it is possible for us to be FI in 10 years (my number is $1.25 million, but I was also anticipating our home being paid off and about $4k in expenses when the student loans and mortgage were taken out). I am not necessarily anticipating quitting my job when I hit FI. I enjoy it too much AND I receive a lot of fringe benefits (e.g. travel paid for to conferences...we make a mini vacation out of it and/or when I take students abroad).

I also know that we have to tighten our budget, particularly our food budget. We should be face punched for that.

Any advice is helpful and thanks ahead of time.

[ItsALongStory]

Who has the bigger of the two student loans?

I am relatively new here but would advise you to focus on the home equity loan first rather than the student loans, I would not refinance as you would lose your amazing interest rate.

Not seeing any car loans, are those paid for? Does it make sense for the wife to drive 45mins each way for 'only' 45k? Will she stop working once the child arrives? does the forgiveness program limit her options in that regard?

Food is crazy high but you already pointed that out. Can you get out of your phone plan without penalty and replace with cheaper options?

[BSL18]

I wouldn't give the 2.9% mortgage up right. IMO your spending is not trimmed down enough yet that you need to think about refinancing. I know you know, but 1200$ for food for 2 persons... We are 2 as well and spend less than 700 CAD per month, without couponing or anything of the sort. Your TV+internet+cable+phones budget is quite high as well, you have to work on that (basically right now you pay the same amount for just this combo than your wife saves from her salary per year).

Regarding FIRE, you're spending 77k$/yr, at a 4% SWR you need just shy of 2M invested. You'll have to work pretty hard to bring that back to 1,25M. If you do, well, you're on the right track to reach this number in 10 years.

[nkt0]

Small potatoes, but $350/month for utilities seems pretty high…

[RWD]

Monthly Budget:
Car Insurance--$175
Utilities--$350
Cable/Internet--$175
Phone--$190 (we are leasing our phones...I know stupid)
Gas--$350 (we both have 45 minute commutes each day)
Food--$1200 (yes BIG face punch here....it used to be $1500 per month...trying to down further)

Car insurance seems high. We're paying ~$100/month for a newer Subaru and Porsche.
Utilities, Cable/Internet, and Phone are all high. We pay less than half your expense for our utilities and internet and a quarter as much for two cell phones.
Even with 45 minute commutes your gas expense should not be that high. That works out to roughly 20 mpg average (assuming city distances) or maybe 30-35 mpg (if highway). With some more efficient vehicles you could possibly halve that.
Yep, your food is out of this world bonkers. Last year we paid $310/month for food and drink, including dining out and alcohol.

With just those categories you shouldn't have any trouble shaving $1k/month off your expenses with no quality of life impact. Even $1.5k/month is a reasonable target.

I agree that you should not refinance your mortgage. 2.9% is practically free money. Focus on reducing your expenses and investing instead.

[FinanceFam]

Yep, your food is out of this world bonkers. Last year we paid $310/month for food and drink, including dining out and alcohol.

I guess I'm not doubting this but I have to know how you're doing it if "we" means two people... That's about $70/week for groceries, dining out AND booze? Assuming just one meal out/week at $15 per person you'd be left with $20/week/person for everything else you consume? I am awestruck by that.

[RWD]

Yep, your food is out of this world bonkers. Last year we paid $310/month for food and drink, including dining out and alcohol.

I guess I'm not doubting this but I have to know how you're doing it if "we" means two people... That's about $70/week for groceries, dining out AND booze? Assuming just one meal out/week at $15 per person you'd be left with $20/week/person for everything else you consume? I am awestruck by that.

Yes, two people.
I don't drink. My wife does, but in moderation. $15/month last year. $16/month over the last four years.
We don't eat out once per week. I count 29 instances of dining out in my expense tracking software for 2017, averaging $31/month (so probably around $6.35/person per instance). We very rarely eat at a place that costs more than $15/plate. I'm counting coffee at Starbucks or similar as dining out, though there were not many instance of that. Our average over the last four years for this category has also been $31/month.
[Food] groceries have been a very consistent category for us. We eat a decent amount of pasta and rice dishes, but also include chicken and some occasional lazy dinners like frozen pizza. Comes out to $265/month last year and $252/month for the last four years.
So there you have it. $311/month (plus sales tax). We're not actively trying to spend as little as possible, we never really consider the cost when choosing meals. It's just sort of worked out this way. I'm sure we could cut our spending even further and I know others on this forum have.

[Dicey]

Can you recast the loan? I'd start there.

I'm a long, low-interest, affordable mortgage fan. If you get a 30, you can always repay it in a lump sum once your investments grow to more than your mortgage balance, which it will. I would not prepay one red cent on a loan for a house I wasn't planning on staying in.

I'll wait while you check on that recast...

[Tuskalusa]

+1 on not refinancing the house.

I would recommend trimming the expenses, and then focusing on paying down the HELOC and building up savings. With the adoption coming, having extra cash to transition to your new life as parents will be helpful.

I don’t quite understand the recasting benefit, so I’m interested in what you find her. Please share.

Thanks!

[AMandM]

Starting with your current investments and adding $500/month for 10 years will not get you to $1.25 million.  Less than $900k.
Even if you refinance and save all of the extra $800/month you still won't get to $1.25M--and your expenses at that point would be $1300 higher than if you hadn't refinanced.

You need to reduce your spending.

[therethere]

Well, in two years with PSLF, you'll free up a lot of cashflow. Can you up your pre-tax deductions even more so your AGI (and therefore your payments) will be lower? I'm surprised your payment is $999 while on IBR. I would have thought it would be lower.