Here is my situation.
I am 32 and married (my wife is 29)
I make 86k a year at my primary job and I have consulting business on the side which has brought me 15-25k a year for the past 4 years but is unpredictable.
(note: If by some freak chance I lost my primary job I could do my secondary job full time and make good money, possibly better than I'm making now).
My wife works retail makes about 15k a year and spends the majority of that on clothes and gifts for her insanely large family. We live off of my primary income.
We have 15k in liquid funds between our bank accounts (including emergency find)
we have 23k in an investment account (stocks & bonds)
we have 42k in our 401k.
We have no debt. other than 2 mortgages.
My mother is on a fixed income and I pay her $500 per month but she says she can do without if I ever fall on hard times.
One mortgage is a rental property
It is worth about 200k we owe 68k the payment @ 4.75 is $978 a month including insurance and taxes
we charge 1850 a month inclusive of utilities which are about 250 a month.
Our primary residence is worth about 350K (we owe about 280k) it is currently a 30 year at 4.875% with a payment of $2074 (Taxes are 4700 insurance 601)
here the question...
My credit union is offering me to refinance to a 15 year fixed at 3.25 The payment becomes 2440 a month, interest monthly is reduced by $460. Total closing costs are 3076. so it pays for itself in 10 months. Should I do it?
Over the past 20 months I have been putting about $900 per month in my investment account. So I have no worries I can handle the extra $360 monthly with my current income.
The one thing making me hesitant is my tenant is moving out in September and I don't want to be stuck with 3320 in house payments without that income (note: i am debating selling the rental property when my tenant moves out. That neighborhood is starting to decline.
What do you guys think?
I would personally never recommend a 15yr mortgage when a 5/1 ARM or 7/1 ARM is available at the same interest rate. If you can get a 5/1 for 3.25%, it may be quite interesting for you. You can save the interest costs for the next 5 years just like the 15yr mortgage, but instead of having less cash to invest in your tax-advantaged retirement account you will likely have more. For the next 5 years, it's a no-brainer -- saving $450 in interest AND a ~$400 better monthly cashflow than with your current mortgage, put into a 401(k) or IRA (for a ~$100 upfront tax benefit per month plus the long-term benefit of pretax growth) is worth perhaps $650/month, or $55,000 compounded at 7% over the next 5 years. With the 15yr mortgage your tax-advantaged saving is less instead of more, so instead of that ~$200/mo gain from the tax shelter effect you would have a similar-sized loss. That's a big impact.
The risk to you is that interest rates may be much higher in 5 years than they are now. However, that is a much more dangerous risk for a non-mustachian. Lets imagine that rates increase very dramatically over the next 5 years, to something scary but unrealistic like 10%. For somebody like yourself with already high monthly savings, good current earnings from diversified sources and likely the potential to be increasing his monthly income, and on top of that a rental property that can be sold in a pinch if absolutely necessary, there's no cause for concern. If rates are that much higher, either inflation has been high or the economy has been good (or both), and those are both scenarios where it will be easy to sell the rental property for WAY more than it's worth today. Use those funds to pay off your mortgage, and if by some chance you still owe a bit on your primary mortgage after the rental sale (this is a worst case scenario after all), you can just direct your monthly savings towards paying it down and it will be gone very rapidly. Certainly it would be gone rapidly enough that even really high interest rates down the road would never eat up your entire $55k interest+tax benefit from the first five years.
I am not a professional or an expert in this field, I'm not a financial advisor or tax accountant or anything like this, and nothing in this message should be construed as tax or financial advice. Just my two cents on the general situation.