Should we refinance?

[spruce]

Our mortgage is a 30-year @ 4.375%, and we have about $95,000 left on the note. Currently our monthly mortgage and escrow is $634, and we pay an extra $100 in principle every month.

We were looking at refinancing and our bank currently has a 15-year @ 3.25%. If we refinance and roll the fees back into the mortgage it would add only about $80 to what we're currently paying, but we'd pay it off in half the time and save ~$43,000 in interest to boot (or get more cash out when we sell it).

Our first instinct was "hell, yeah!" and we went ahead and scheduled a meeting with our lender for this coming week to talk about it. But then thanksgiving conversations with my mom has made me think a little more about it. Her argument is that our existing interest rate is really low and we could use that money for home improvement projects (which our house needs eventually) or other investments.

That got me thinking about flexibility in general. We wouldn't have trouble making the payments, but perhaps having the cash on hand to use or invest in long-term savings would be better.

My husband's income is inconsistent and low right now because he's in school full-time. We have an emergency fund, we don't have any debt beyond my student loans (which I'm paying off through the public service forgiveness program), and we have an okay savings rate (I'd like it to be higher but it is what it is right now). We have a side business which supplements our income but is somewhat seasonal and not consistent. Our credit ratings are high and I don't think we'd have trouble qualifying on just my income for the refinance (we qualified for the original loan on just his income and I make a good bit more now.)

We're not sure how long we plan to hang onto this house. We love it and love living where we live. We'd like to invest in several rental properties in a few years, and long-term we would like to "retire" onto a farm. When we do that we may keep this house as a rental.

FIRE is 12-15 years off, so it'd be nice to own this house free and clear by then. But at the same time, perhaps we should be stashing that extra for down payments on rental properties. Or having kids in the near-er future. Or just as extra cushion while my husband finishes school.

They keep saying interest rates will go up soon, so I kind of feel like it's a now-or-never situation.

Would love any comments, thoughts, or advice!

[CowboyAndIndian]

One option you could do is to prepay principle.

For example if you prepay your next months principle with this months payment, it will reduce the term of your loan by one month.

This is easier to do at the beginning of the loan since the major part is interest and principle will be very little.

[boarder42]

Keep the loan and invest the money. A mortgage at that rate should not be paid down faster and the refi isn't worth it

[Another Reader]

You might want to consider refinancing your 30 year loan into another 30 year loan at a lower interest rate.  Check rates for refi's at Aimloans, generally one of the least expensive lenders, and your lender.

https://www.aimloan.com/

More flexibility so you can deal with the inconsistent income, and you can pay more toward principal as funds are available.

[MDM]

Reducing the loan rate is a generally good thing.

Ignore escrow in any mortgage calculation - property taxes won't change at all, and insurance is unlikely to change.

What was the original amount financed?  How does the mortgage payment compare with other expenses and gross income?

[spruce]

The original amount of the mortgage was $101,500. We've only been here for 2.5 years.

Our combined gross income is $5200; $3700 net after taxes, health insurance, and pre-tax contributions. We currently pay $734 towards mortgage and escrow, and that includes $100 extra towards principle and ~$125 in escrow. We're able to save roughly $700-$1000 a month, not including pre-tax deductions and employer retirement contributions.

[MDM]

The original amount of the mortgage was $101,500. We've only been here for 2.5 years.

Our combined gross income is $5200; $3700 net after taxes, health insurance, and pre-tax contributions. We currently pay $734 towards mortgage and escrow, and that includes $100 extra towards principle and ~$125 in escrow. We're able to save roughly $700-$1000 a month, not including pre-tax deductions and employer retirement contributions.

Appears you are doing pretty well and will be ok no matter what you do with the mortgage.  You might refinance to get the lower rate, then not pay any extra toward principal because you have a low rate.

Assuming your pre-tax insurance gets your income below the $61,000/yr saver's credit cliff, contributing at least $4,000/yr to some combination of traditional/Roth 401k/IRA accounts will allow you to maximize the saver's credit.