Usually I'm pretty good with PF questions, but I'm stumped on this one.
Background for store: About 12k left in student loan (projected pay off July 2013). Currently investing 0 in retirement (Dave Ramsey Plan), but will be contributing what I'm currently contributing to pay off my debt when I pay off my debt. My current home loan is 3.875%/20 years (only 6 months in, refinanced earlier this year), with a balance of 153k.
I squeezed $100 out of my budget this month, and given the current current mortgage rates, I'm at a dilemma.
I can currently get refinance to 2.75%/15 year, that would cost about $100 extra per month, but add about an extra $100 in equity per month, for a given difference of about 13k extra in equity over 5 years.
Should I put the extra $100 in my debt repayment, and then eventually into retirement; or put the $100 into my house equity via the refinance?
Note 1: I do have an emergency fund (about 30k), and have some retirement (about 30k).
Note 2: Re the refinance, the closing costs would be about $900, thus the total cost over 5 years (including closing costs, and extra payments), would be about 7k, but I would have about 13k more in equity. The way I view it is I'm spending 7k to get 6k in returns, almost doubling my money.
Note 3: Re my student loan, it is at the typical 6% interest rate, but I'm projected to pay it off in about 9 months, so they extra $900 ($100 per month over 9 months) towards it wouldn't make too much of a difference in the long run (e.g., pay the debt 1 month faster)
Note 4: I'm really reluctant to pay down my student loan with my e-fund. I really like the e-fund in place, and by not using it, it forces me to pay down my debt faster.
Note 5: The only reason I'm considering refianncing is how low the mortgage rates have gotten. 3 years ago (when I bought the house), I got a 5.875%/30; refinance 6 months ago to a 3.875%/20; and now I can get a 2.75%/15. In theory, I would like to refinance after I pay off my debt, but the driving force is i) how low the rate is now and ii) what will the rates be in summery 2013 when I projected to pay off my debts.
Update: I've decided to pay off my student loans with my E-Fund. I'm now debt free!!!!