Please help me decide if I should recast and if so, is the plan below optimal?
I understand the probability that the money will earn more if I stick to investments, but I feel I'm leveraged too much and emotionally, it's a lot of stress on me as a single earner. So I'm not asking for a generic analysis of "should I pay off my mortgage or invest". Instead, I'm asking what YOU would do if you were in MY shoes. (probably okay to skip the answer that most would not have bought a house this expensive, but feel free to facepunch if you must.)
I currently have two mortgages
1. Primary residence: 560K @ 3.875. Home value ~ 900-950K
2. Rental: 250K @ 3.0% ARM (It just reset. had been 2.8% for a few years. cannot increase more than 2%/year). Home value ~ $310-340K (I paid $350k)
I am cash flow negative on the rental and want to sell it within 3 years. Refinancing the rental would immediately increase the interest rate by 1 or 2% (guessing) due to status as investment property, so I haven't put much consideration there. I'm not a natural landlord, and want to get out of the business before I lose even more money (but I want to wait for the optimal time to sell, which I believe is 2018, when a new transportation hub will open a few blocks from the condo.)
My primary residence is in a HCOL area. It's 5 miles from where I currently work, in a fantastic and growing neighborhood. I have no plans to move from this house. Problem is, my house payments are large and scary. Assume income is not a problem now, but could will very likely drop by half or more sometime between 6 months or 6 years. So I'm thinking of recasting the mortgage on my primary residence to a much smaller amount, leaving me with a low monthly payment, that I wouldn't worry about paying, even if I had to go "get a real job".
The facts:
Recast cost: about $250.
my age: 47
mortgage principal remaining: $560K @ 3.875%
term remaining: 27 years
monthly PITI: $3500. I've been paying an extra $1000/month toward mortgage principal so that even if I do nothing else, I'll get the mortgage paid off by age 63
My plan:
recast the loan using:
$70k from sinking fund, closing the sinking fund (remaining balance = 0).
$30k from cash balance, leaving the rest in high-yield savings/CD mix (remaining balance = $95k)
$150k from taxable investments,(remaining balance = $180k)
This will decrease mortgage principal balance to 310k, with a monthly PITI payment of $2250. I'd be much more comfortable with this amount, because I wouldn't have to stress every.single.day about "what if <worst case likely scenario>" anymore.
go forward plan: Pay minimum on mortgage (to age 74), all funds that would have gone to paying down mortgage instead go into my low-fee index funds in a taxable account. (Already taking advantage of most tax-advantaged savings).
Does the plan sound reasonable? Am I overlooking anything? Is there a better way? Other than reducing short-term gains, is there any other tax implication to be aware of? Please pick this plan apart so I know I've considered all options. Many thanks for reading and responding.
Edited: See strikethrough above. I'm an independent consultant exploiting a situation where qualified resources are scarce. But this is changing, quickly. I haven't changed my rates in 5 years and I assume my next position will be much more competitive. When that happens, my income will decrease.