Loans Answers

Another mortgage refinace question with a TWIST

Question: With Interest rates at an all time low I have been doing the numbers myself as many others have. Here is my current mortgage. We have a 30 year mortgage at 7%. I thought we did pretty good. However, with rates this low I can get 6.25% on another 30 year, 6.125% on a 20 year and 5.615% on a 15 year.

However, we started having children late in life and my wife is not working. She will not be going back to work for about 5 years. We are a little tight on money right now (Not very bad) and we are having trouble just raising the money to contribute to our ROTH’s (which I really want to do).

So, my thoughts for NOT refinancing are that we should take the extra money we would put toward the mortgage either as a pre-payment or refinance and put it into our daughters 529 plan and/or our retirement plans. Note that we are not maxing out our retirement plans now and I was thinking we should put that as well as the 529 plan ahead of any plan to re-finance the house or make pre-payments.

Note that we ARE planning on staying in the house for the long haul (+15 years).

Any thoughts here? If we were to get a 30 year mortgae at 6.25% it would take 18 months to recoup the closing costs (note that I was really not considering the 30 year but maybe I should too..??).

Answer: If 3/4% is all you’ll gain (assuming you don’t want significantly higher required payments), you may not want to jump into a refinance.

If money is tight now, can you afford the closing costs now without taking out a loan? How old is your daughter? One problem with a 529 plan is that many colleges now base financial aid only on financial “need” — not on scholarship — so the $$ you have in a dedicated fund later on may actually reduce the amount she can get in grants.

Do you have any credit card or other high-interest debt? If so, pay it off FIRST, then re-assess your position. You might want to consult with a fee-only (doesn’t try to sell you funds & insurance) financial analyst (might cost $600-1000) and have him give you advice based on all the facts.

You can make principal payments on your current loan at any time to reduce the interest burden and payoff term down the line. Without the immediate burden of closing costs, you might be able to make reasonable payments into a Roth and 529, and set aside some $$ into a mortgage principal fund which you pay out to the mortgage company 1-4 times/year.

Related Posts

• Credit Reports
• Judas Greenspan crucified the U.S. economy
• Form LLC company for rental home investment?
• Co-signing on a mortgage re-financing
• Title query.
• Living Advice
• Apartment Credit Check
• AT&T Global Security Systems
• Help! Have I been had by late night ad!
• bankruptcy or settling on bad debt charge-offs?
• Buy House as Investment?
• Can a dealer ask for additional docs THREE DAYS after the sale?

Filed under: Home Equity Loan