To refinance or not

[FireAnt]

We currently have 3.5% fixed rate on a 30 year mortgage (7 years into it). Rates are decreasing so we met with a local credit union to explore options. They gave us a quote for 15 years at 2.75% with approximately $2500 in closing costs. This will be slightly less if they don't have to assess our home.

We also have a Mortgage Credit Certificate when we purchased the house, which gives us a 20% return on the interest we pay every year for the life of the loan. If I'm doing math correctly, that effectively gives us a 2.8% interest rate (20% off 3.5%). If we refinance, we lose this benefit.

We plan to pay off the mortgage, and made extra payments for a while until we got really mustachey and decided to put those extra payments in a taxable mortgage account (VTSAX) so we can make a lump sum and pay it all off when it reaches the amount we owe.

We are thinking with these numbers, it makes no sense to refinance in our situation. Can anyone else give a good reason why we would? Or any other insight?

[seemsright]

I would not. The closing costs make it so it would be a net zero.

I would just throw a few extra $$ at the loan if your goal is to own your house outright.

If the rates come down a bit lower you might want to. Back when I had a mortgage the rule of thumb was you had to drop a full percent to make it worth the effort. But back during the housing boom in the early 2000 we never paid much in closing costs so that would change the game now.

[FireAnt]

I would not. The closing costs make it so it would be a net zero.

I would just throw a few extra $$ at the loan if your goal is to own your house outright.

If the rates come down a bit lower you might want to. Back when I had a mortgage the rule of thumb was you had to drop a full percent to make it worth the effort. But back during the housing boom in the early 2000 we never paid much in closing costs so that would change the game now.

Thanks. Yeah I've come across the same rule in other groups and research. I guess they have to make money another way.

My thought is to contribute the "extra" payment to the taxable account to take advantage of investment gains until ready to pay it all off at once.

[Retire-Canada]

My thought is to contribute the "extra" payment to the taxable account to take advantage of investment gains until ready to pay it all off at once.

That's ^^^ the way I would attack a mortgage early as it avoids the liquidity risk you face until the mortgage is finally paid off. You can also decide to leave the mortgage in place and not pay it off early. Having options is great.

[FireAnt]

My thought is to contribute the "extra" payment to the taxable account to take advantage of investment gains until ready to pay it all off at once.

That's ^^^ the way I would attack a mortgage early as it avoids the liquidity risk you face until the mortgage is finally paid off. You can also decide to leave the mortgage in place and not pay it off early. Having options is great.

Agreed! Need to have some flexibility though if there is a downturn. If we were ready to pay off our mortgage March 23... would not have been a good time :)

[2Cent]

The only easy way to boost the economy is to print money and reduce interest rates, so expect the rates to come down more. Even negative interest is not off the table(for banks, not for us unfortunately). Also if we really go into a depression there will be great bargains on investments for people who actually have money on hand.

[FireAnt]

The only easy way to boost the economy is to print money and reduce interest rates, so expect the rates to come down more. Even negative interest is not off the table(for banks, not for us unfortunately). Also if we really go into a depression there will be great bargains on investments for people who actually have money on hand.

Are you referring to real estate investments?

[honeybbq]

We currently have 3.5% fixed rate on a 30 year mortgage (7 years into it). Rates are decreasing so we met with a local credit union to explore options. They gave us a quote for 15 years at 2.75% with approximately $2500 in closing costs. This will be slightly less if they don't have to assess our home.

We also have a Mortgage Credit Certificate when we purchased the house, which gives us a 20% return on the interest we pay every year for the life of the loan. If I'm doing math correctly, that effectively gives us a 2.8% interest rate (20% off 3.5%). If we refinance, we lose this benefit.

We plan to pay off the mortgage, and made extra payments for a while until we got really mustachey and decided to put those extra payments in a taxable mortgage account (VTSAX) so we can make a lump sum and pay it all off when it reaches the amount we owe.

We are thinking with these numbers, it makes no sense to refinance in our situation. Can anyone else give a good reason why we would? Or any other insight?

You need to run the numbers and do the calculation. I just refied down to 2.75% and it'll take a year for it to be "worth" it. Despite having 7 figures of equity in our home, we needed an assessment (I think you can get around it if it's an FHA loan), so don't count on that. I think ours was $500.

Try this calculator:
https://www.nerdwallet.com/mortgages/refinance-calculator

No one can tell you the right answer- it's all in the math and what your turnaround time is (for us was a year).

[FireAnt]

We currently have 3.5% fixed rate on a 30 year mortgage (7 years into it). Rates are decreasing so we met with a local credit union to explore options. They gave us a quote for 15 years at 2.75% with approximately $2500 in closing costs. This will be slightly less if they don't have to assess our home.

We also have a Mortgage Credit Certificate when we purchased the house, which gives us a 20% return on the interest we pay every year for the life of the loan. If I'm doing math correctly, that effectively gives us a 2.8% interest rate (20% off 3.5%). If we refinance, we lose this benefit.

We plan to pay off the mortgage, and made extra payments for a while until we got really mustachey and decided to put those extra payments in a taxable mortgage account (VTSAX) so we can make a lump sum and pay it all off when it reaches the amount we owe.

We are thinking with these numbers, it makes no sense to refinance in our situation. Can anyone else give a good reason why we would? Or any other insight?

You need to run the numbers and do the calculation. I just refied down to 2.75% and it'll take a year for it to be "worth" it. Despite having 7 figures of equity in our home, we needed an assessment (I think you can get around it if it's an FHA loan), so don't count on that. I think ours was $500.

Try this calculator:
https://www.nerdwallet.com/mortgages/refinance-calculator

No one can tell you the right answer- it's all in the math and what your turnaround time is (for us was a year).

The average refinance calculator wouldn't be helpful due to the mortgage credit certificate I referenced that needs to be taken into account, prompting this question. Also, we already met with a mortgage lender who gave us all the numbers, but again it doesn't take into account the MCC.

[2Cent]

The only easy way to boost the economy is to print money and reduce interest rates, so expect the rates to come down more. Even negative interest is not off the table(for banks, not for us unfortunately). Also if we really go into a depression there will be great bargains on investments for people who actually have money on hand.

Are you referring to real estate investments?

Real estate, stocks, cars, labour. Due to a shift in demand the economy will overproduce many things for some time, which will go on sale. Of course the safe MMM investment would be index shares, but if you're a bit enterprising you can do all sorts of investments.