Author Topic: Should I refinance to increase savings?  (Read 2088 times)

dhbike01

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Should I refinance to increase savings?
« on: September 15, 2014, 02:14:36 PM »
Does anyone consider it ok to refinance and add years to your mortgage in order to increase your savings rate?

Here is my current situation:
Principle & Interest: $857
Interest Rate: 4.375%
Years Remaining: Under 10

Possible Refinance:
Principle & Interest: $607
Interest Rate: 3.375%
Years Remaining: 15

I might be able to beat the 3.375% interest rate as I just did an initial check.  There is also an estimate of just under $3,000 in closing costs.  I also realize that you need to be in a house for so long for the refinancing to make sense.

Would you refinance to put $250 extra a month into a taxable investment (possibly after-tax 401k) or would you keep going to pay off the mortage?

isbjshaffer

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Re: Should I refinance to increase savings?
« Reply #1 on: September 15, 2014, 02:52:08 PM »
We actually did something similar - we refinanced to get rid of the PMI and rolled in 20k of student loans. Our payment is slightly higher than it was before but we no longer have the student loan payment - freeing up 200$ a month. Our debt is still the same but I have more cash flow to pay it off or to invest in other ways!

Louis the Cat

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Re: Should I refinance to increase savings?
« Reply #2 on: September 15, 2014, 03:02:51 PM »
I personally am a very big fan of paying off the house so I flinched at the initial question but your numbers scream DO IT to me. You're only adding 5ish years to your mortgage, lowering your interest rate substantially and presumably (because you're here) can be trusted to invest the difference. On the surface, I like it!

CommonCents

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Re: Should I refinance to increase savings?
« Reply #3 on: September 15, 2014, 03:11:27 PM »
You could also refinance, but then throw the extra money each month at the new mortgage so it's actually paid off in a shorter time than your current mortgage.

slugsworth

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Re: Should I refinance to increase savings?
« Reply #4 on: September 15, 2014, 03:53:25 PM »
I was going to ask if you had looked at shorter term mortgages. I don't know where you are located, but I've seen 10 year and even a 12 year no fee mortgage in the Northwest. In short though, run it on excel.

mozar

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Re: Should I refinance to increase savings?
« Reply #5 on: September 15, 2014, 04:54:58 PM »
How long was your current mortgage? Are you in the last ten years of a thirty year mortgage? If so you have already paid off all the interest, and a refinance would restart paying interest.
Closing costs seem high. I paid about 1500 and have heard of paying far less.

dhbike01

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Re: Should I refinance to increase savings?
« Reply #6 on: September 15, 2014, 05:38:00 PM »
My current mortgage was a 15 year refinance just over 5 years ago.  I haven't looked at any shorter term yet.  I was just wondering if the concept of lowering your mortgage payment to invest the difference is sound.  I would really like to build taxable/Roth investments while my income is high.  Right now, i'm heavy in my 401k.

FrugalSpendthrift

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Re: Should I refinance to increase savings?
« Reply #7 on: September 15, 2014, 06:04:27 PM »
Refinancing to lower your interest rate by a full point makes good sense as long as you can recoup the closing costs in your savings.

What you decide to do with the increased cash flow can be treated like a completely separate question, and with a rate that low, it probably makes more sense to invest than to pay down your mortgage early.