Refinancing. Is this scenario worth it?

I purchased my house in 2004. At the time I took out a 30 yr mortgage, $333,700 loan at 6.25%. My payment was $2054/mo. Then in 2009 I refinanced at 4.875% 30 yr mortgage for $328,000 (closing costs rolled into the loan). My payments are now $1735/mo, about $319 savings/month. Now the rate is 3.875%, which means I can lower my monthly payment to about $1540/month, about $195 savings/month.
I'm only into this new loan 2 years, so it does not seem a big deal to me to reset the loan to 30 years. And god for bid I lose my job or get hurt, that extra savings a month would help. My wife however thinks its bad, and she's more interested in paying off the house. I told her it does not make sense to pay off the house at these rates, its not like years ago when rates were 8, 9 or 10%. I like the fact that I can keep almost $200 in my pocket every month. Just curious what everyone else thinks.
Reply to
Mike rock
There's a compelling case to refinance. A full percent means the savings is over $3000 the first year. Yo don't mention the closing costs, but you probably have a fast breakeven.
You have a number of options to keep the mrs happy. Do the math, and pay enough extra principal each month to keep it at the remaining 28 years. You'll still pocket some money, and not extend to 30 years again. The other choice is to get a 20 year mortgage. The rate will be slightly lower, perhaps 3.5%, and the payment only a bit higher, $1900 or so. You will get a far greater return from your happy relationship than from trying to invest the savings over the extra years. Ending that mortgage 10 years early is the way to go.
A friend once told me "If your wife is happy and you are not happy, you are still far happier than if your wife is not happy but you are happy."
(Note, if your wife felt otherwise, I'd tell you that over a 30 year investing horizon you should easily beat the 2.9% or so post tax cost of this mortgage. Many ETFs are yielding nearly 4% (DVY for instance) so you break even or better if the market is flat for decades. In normal times you'd see the dividend continue to rise and you'd accumulate gains.)
Reply to
As usual, I agree with Joe. Employ the wisdom of Solomon and split the baby. Suppose you refinance under the conditions you stated. Now pocket half of the $195 monthly savings and put the rest toward extra principal payments. You'll pay off the mortgage in 27 years. If you put the entire $195 per month toward extra principal payments, you'll pay off the mortgage in 24 years.
I was recently shopping for a new mortgage and found the 20-year mortgages somewhat... lacking. They were very expensive and the interest rates weren't all that great. Maybe it's because 20-year mortgages aren't all that popular. It seems most people either go with a 15-year or a 30-year mortgage. *shrug*
Reply to
Bill Woessner

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