Savings from a Refinance

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Topic Author
sethmac
Posts: 13
Joined: Tue Sep 01, 2020 4:51 pm

Savings from a Refinance

Post by sethmac »

I plan to complete a refinance on my home this month (30 year, 3%) that will save me roughly $300/month. I want to put this money to work.

Traditionally, I think folks would say to "keep paying the same payment" and pay off the home 7 years early. My thought is I should take the $300/month and push it into my retirement given the interest rates.

Just want to get your thoughts?
Pegasus_RPG
Posts: 49
Joined: Fri Jul 20, 2018 11:06 am

Re: Savings from a Refinance

Post by Pegasus_RPG »

Both are good options. It really just depends on what's more important to you. One aspect to consider is that paying down the mortgage sooner essentially "ties up" that capital in the asset, but it also means you'll be that much closer to a big reduction in your living expenses, meaning what you have already saved for retirement will go that much further. So which idea brings you more satisfaction: sooner lowering of living expenses or making ~3% on the borrowed amount over the next 30 years?
260chrisb
Posts: 556
Joined: Wed Apr 28, 2010 7:26 pm

Re: Savings from a Refinance

Post by 260chrisb »

You're going to put it to work either way technically. What's your PMI status? Paying more to your mortgage will help you eliminate it of course but saving an additional $300.00 per month will do great things for a retirement plan. Are you saving for retirement at a high rate? This is a good problem to have to deal with. Maybe some of both!
Topic Author
sethmac
Posts: 13
Joined: Tue Sep 01, 2020 4:51 pm

Re: Savings from a Refinance

Post by sethmac »

We do not have PMI.

Currently, we save 16% of my income for retirement plus I have a 7% match from my company. Additionally, depending on performance, we get a profit sharing contribution to our retirement.
pasadena
Posts: 620
Joined: Sat Jul 02, 2016 1:23 am
Location: Washington State

Re: Savings from a Refinance

Post by pasadena »

sethmac wrote: Tue Sep 15, 2020 12:51 pm We do not have PMI.

Currently, we save 16% of my income for retirement plus I have a 7% match from my company. Additionally, depending on performance, we get a profit sharing contribution to our retirement.
Use the money to increase your retirement contributions for both of you if you're not maxing them out yet.
CurlyDave
Posts: 1914
Joined: Thu Jul 28, 2016 11:37 am

Re: Savings from a Refinance

Post by CurlyDave »

I would save the extra money and invest it in a taxable account.

That way it is always available to you either as a "deep emergency fund" or to pay down the mortgage if you ever want to. Of course this is subject to the risk of the market, but the odds are with you.

I have owned houses since 1972 and have found that no matter what my intentions at the beginning of a mortgage or refinance, 30 years is a very long time and plans have a way of changing. Every house I haver ever sold, any extra payments have been lost in the noise of the amounts moving around with buying a new one.

* * * * * * * * * * * * * * *

Once you pay down the mortgage the money is inaccessible. Invested in a taxable account you have liquidity which, at least for me, has had great value.

It smacks of market timing, but the old saying that the time to buy is when there is blood in the streets has served me well. Having liquidity at those times in the real estate market has easily doubled or tripled our net worth.
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