Invest or Pay Down Mortgage to Refinance?

[kvthayer]

I'm 29 and I have about 150,000k sitting in a savings account and don't know what to do with it. I own a rental property with a 6.75% mortgage. I break even on rent if not lose a little bit each month. The house is underwater but I can refinance down to lower rate which will save allow me to cash flow about 10,000k a year; however, I need to put up 47k to close. Is it worth it to tie up that much cash? If not, suggestions of where I should put the money?

[stilts1007]

Was just in a similar situation (put a big chunk of money toward mortgage or invest it). Read thoughts & analysis from several sources. Ric Edelman is all about carrying the biggest, longest mortgage you can because you can invest and make a higher percentage in the market (probably) than you pay in mortgage interest, plus that mortgage interest is tax deductible. If you put a huge chunk towards your mortgage, then need/want that money for big unexpected expense, it can't come out of the mortgage nearly as easily as it can out of a mutual fund.
That said, the mortgage is a consistent, steady monthly payment, and obviously returns on the stock market can vary. We ended up sort of splitting the difference, put enough toward mortgage to get rid of our PMI and get a little better rate, then invested the rest. At the end of the day I say it's all about what makes you comfortable and lets you sleep easy at night.

[stilts1007]

Either way I would encourage you to do SOMETHING with that giant chunk of cash. Probably not getting a great rate of return sitting in a savings account. I am accepting donations for my beer fund if you REALLY don't know what to do with it..

[Watty]

You didn't give enough information about your situation to really say what would be best. You didn't mention what the terms of the loans are and how much you are able to deduct on your taxes and this makes a big difference.

will save allow me to cash flow about 10,000k a year; however, I need to put up 47k to close. Is it worth it to tie up that much cash?

It wasn't clear just what the tax implications would be but if you save that $10K a year then you would save up that 47K in less than five years so it would not really be tied up that long.

[zebrafish]

In the lack of complete information, a 10K per year savings by putting up 47K seems a pretty good return on investment

[LFKB]

I would spend the $47k to reduce the interest rate and invest the rest in Total Stock Market, Total International Stock Market and either Total Bond Market (if 25% or lower tax rate) or Intermediate Tax Exempt (if over 25% tax rate).

[Rammer]

In the lack of complete information, a 10K per year savings by putting up 47K seems a pretty good return on investment

It would probably even be better that, assuming he'd refinance to a much better rate that 6+%.

I'd refinance.