Current mortgage balance: $165k@4.5%
House purchase price: $219k three and a half years ago.
Values in our area have fallen since purchase, so I'd ballpark that our house is worth $200-210k. However, our next door neighbor has a similar house (in terms of quality of construction, materials, finish, etc.-- theirs is about 2900sft vs. our 2400sft) and just refi'd with an appraisal at $295k (roughly $100/sft). On the other hand, the smaller house on our other side recently sold for about $80/sft.--it was not in great interior condition and sold before the realtor's sign went up in the yard.
PenFed's 5/5 ARM is currently 2.75% and they pay all closing costs (about $3k). The catch is that they require 70% LTV in our state, so I may be looking at putting cash in to get the refi done (unless we get an extremely generous appraisal like our neighbor). We have enough in cash (about $40k in savings acct.) and it will cut our interest payments by about $300/month. With the lender covering closing costs it seems to be a no-brainer.
One complicating factor is that I had planned to survive on savings the rest of the year as I've already earned more than I did last year and wanted to put most of the rest of my income into maxing out my 457 plan. So there's $17k of income that will be "missing" for the next three months. I think we're okay, as our $40k cushion - $15k living expenses (we can pretty easily live on $4k/month so $17k is extremely generous) still leaves $25k to put toward paying down the mortgage to facilitate the refi. However, this could potentially leave us with zero cash cushion, albeit only temporarily as my first paycheck in January will go back to normal.
The obvious risk is a drop in housing value, but we already face that regardless of the refi. We will probably be relocating within the next two years, but as I mentioned above with zero closing costs this should pay for itself quickly. One objection I can come up with is that if I don't have enough cash on hand before April 15, we won't be able to max out our Roth contributions for 2012 (I had earmarked some of our savings for that). I suppose another worry is that the appraisal comes in so low that we need to put more than $25k or so in, leaving me holding the bag for pre-closing expenses: I'm on the hook for the app fee ($65) and appraisal (~$300?) if we back out once the application process is started.
Any comments you fine folks have would be great, this forum is awesome for getting lots of good perspectives.
Thanks!