Author Topic: Refinance with plans to pay off in <5 yrs?  (Read 1262 times)

Murr

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Refinance with plans to pay off in <5 yrs?
« on: November 09, 2015, 08:20:43 AM »
Hello all, Looking for some sound advice as my plans have a very emotional feel to them. I've internally debated and researched to no end the whole invest vs. pay off mortgage topic. I've made the personal[/b] decision to pay off the mortgage as having that last bit of debt gone would really allow me to be flexible in what I do with my time, mostly spend more with my kids who are still young as I travel quite a bit for my current job.
Anyway, I've been investing in a taxable account since April(in addition to maxing 401K) and will have about $150K in a few months. I have $310K left on my mortgage and my question is should I just continue to save up until I can knock the whole balance out(about 2 more years) or is there any sense in throwing the $150K at the mortgage and refinancing? I could refinance to a 15 yr or even an ARM to get a lower rate then the 3.99 I am at now. This would lower my monthly outlay, allow me to save more, but would also make me feel like I am making progress. I am going to knock the thing out in about 2-3 years anyway so not sure it makes a difference. Am I nuts?   

Daddyfatsax

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Re: Refinance with plans to pay off in <5 yrs?
« Reply #1 on: November 12, 2015, 12:14:44 PM »
It's really your decision on how to handle it. I would consider these things:

If you are going to knock it out in a couple years, what is the difference in total interest paid with your current rate vs. the refinance rate? Over just a couple years it may be negligible (especially considering refinance fees).

Do you want the guaranteed return of 3.99% on your money by paying down that loan now, or the (Market return)-(3.99%) = Return of leaving your money in stocks and while saving then paying off once the balance is full?
Actually this is an even more complicated question because it is 3.99%+(mortgate interest paid tax savings) = Mortgage Payoff Return or (Market return - capital gains tax) - (Mortgage Payoff Return) = Save In Market Then Lump Sum Payoff Return. Whereas SIMTLSP Return could be higher, it could also be negative if the market goes down, or just plain negligible again. It's your choice on if you want the risk in return for the potential reward of paying it off quicker.

I am not you, nor do I presume that I know the best way to tackle this problem. However, I have also decided on the mortgage payoff route (I want the freedom from my job too), and my plan is: build Emergency Fund (5k in my case, done), max 401k (done), max Roth IRA (not quite there), then extra payments to mortgage. Taxable account investing will replace the extra mortgage payments once it is paid off. Then of course, the final step is RE.

Murr

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Re: Refinance with plans to pay off in <5 yrs?
« Reply #2 on: November 12, 2015, 12:32:09 PM »
Thanks for the feedback. Like you, freedom from my job is a big reason for paying this thing off. The more I think about it and run the numbers, just tossing the money at the mortg now to be the best route. With the time period being so small, the "savings" are all mental.