I ran a few mortgage #'s for you based on rates I found online at a local credit union:
Current
4.875%
232,000 Orig Prin
$1,228 Monthly P&I
~$300 Monthly Principal Payment
New 30 Year
4.125%
217,000 Orig Prin
$1,052 Monthly P&I
~$315 Monthly Principal Payment
New 15 Year
3.25%
217,000 Orig Prin
$1,525 Monthly P&I
~$950 Monthly Principal Payment
So if you were to switch to a 15 year mortgage your payment would go up ~$300/month and your principal portion of the payment would go up ~$650. You already have $400+ of surplus now that you don't have daycare. When the UV Life policy stops you'll have another $300 of monthly cushion. If you switch to a T.IRA you will have even more cushion as you won't have to pay as much in taxes.
You can swing a 15 year if you want, but at the very least get a lower 30 year rate which would free up another $176/month for you to invest.
Thanks so much for crunching those numbers for me!
Ok, I'm definitely liking the refinance idea. I'm having a hard time choosing between 15 yr or 30 yr. Please help me understand if my thought process is correct here:
Option A
Refinance 217,000 + $6,000 closing costs = 223,000 into a 15 yr fixed at 3.29%
Monthly P&I = $1,571
Total mortgage interest paid $59,832
Would Pay off 10/01/2029
Beginning 11/2029 invest entire $1,571 mortgage savings
1571 monthly compounded at 7% for 15 more years = $497,951 (balance in 30 years)
1571 monthly compounded at 6% for 15 more years = $456,879 (balance in 30 years)
1571 monthly compounded at 5% for 15 more years = $419,913 (balance in 30 years
1571 monthly compounded at 4% for 15 more years = $386,610 (balance in 30 years)
Option B
Refinance into a 30 yr fixed at 4.29%
Monthly P&I = $1,102
Total mortgage interest paid $173,812
Would pay off 10/01/2044
Take the difference and invest in vanguard $1,571-$1,102 = 469 per month to invest
469 monthly compounded at 7% interest would be $148,658 after 15 years or $572,175 after 30 years
469 monthly compounded at 6% interest would be $136,396 after 15 years or $471,124 after 30 years
469 monthly compounded at 5% interest would be $125,360 after 15 years or $390,334 after 30 years
469 monthly compounded at 4% interest would be $115,418 after 15 years or $325,512 after 30 years
So, if I crunch those numbers it looks like either way in 30 years I'd have a paid off home and an investment portfolio, but depending on the market return for the next 30 years, the portfolio will be slightly different sizes depending on which loan I take.
If the market return in the next 30 years is 6% or better, it would be better to take option B, the 30 year loan. If market return in the next 30 years is less than 6% it would be better to take option A, the 15 year loan.
Are there other considerations that I'm overlooking? Such as tax implications? To the best of my knowledge both contributions feature a tax shelter, but is the IRA or 403(b) a BETTER tax shelter?
What about the fact that if I choose the aggressive debt reduction plan (15 yr mortgage) I am guaranteed the outcome I hope for. But if I choose the aggressive investment option (30 year mortgage) I am risking lower than hoped for returns, or potentially even a loss. How strongly should I consider these factors?
Do my calculations and though process seem accurate?