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I'm two years into a 30 year mortgage at a 4.8% rate. Does it make sense to refinance to a 15 year at 3.25% or invest the $568/month that it would cost extra per month for a 15 year mortgage into retirement funds instead?

We claim a deduction for a home office. We are in our 30s.
Jan 13, 2012 by Breanne from La Mesa, CA in  |  Flag
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4 votes

Keep your 30 year mortgage! First, you've already paid all the upfront fees for it. Second, even if you want to pay it off earlier 30 years, you have the option to do so, but not the obligation. With a 15 year mortgage you will be required to. The 30 year gives you more flexibility. In this economy that is a good thing. If you have sufficient emergency reserves and other liquid investments then paying down your mortgage is a viable option. Remember, though, that once you pay money into your mortgage, that money is no longer liquid. My personal preference is to invest outside the mortgage; while 4.8% is a guaranteed return paying off the mortgage, you should be able to do better with a well constructed portfolio. I believe strongly in retiring without a mortgage if possible, but at your age I'd be more likely to advise you to build your retirement plan and other liquid investment balances first.

Comment   |  Flag   |  Jan 16, 2012 from Arvada, CO

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The consideration to refinance a mortgage involves a number of factors. In a blog I've written at chestnutblog.com, I point out two major factors when considering the refi: will you reduce the monthly/annual payments, and will you reduce the amount of years you will be obligated to the morgtage? Since it seems that the answer to both is yes, I would consider the refi, as you include as well the cost of the transaction. Since you have a home office, I suggest that you consult with your tax accountant as to the advantages of running a business from the home, as well as consult your Certified Financial Planner(tm) to do a cash and tax flow analysis to calculate and project the short and long term ramification of this taransaction. The projected extra monthly money can be used for a retirment fund, college funding, set up an emergencey fund, etc.

Comment   |  Flag   |  Jan 17, 2012 from Suffern, NY

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