I’m only 3 years into a 30 yr mortgage at a 5.2% rate (home purchase price = $480k; current value = $510k). Does it make sense to refinance to a 15 yr at 3.25% or should I invest that into a retirement fund instead?
Should I refinance my mortgage rate? Trying to compare opportunity costs of refinancing vs. investing.
Yes, it most likely makes sense to refinance. My question is, why would you take a 15 year and not a 30 year? If you look at the difference in rates, and it is not too much, you may want to seriously consider taking a 30 year fixed. I know that 30 years seems like a loooong time (as does 15) but the truth is, time flies, and the peace-of-mind that comes with having your interest rate locked-in for 30 years, at historic lows, may well be worth the cost of a slightly higher mortgage rate and closing costs.
To decide if you should refinance, figure out how much you will be saving on a monthly basis, and multiple that number by the number of months you plan to stay in the home (and then add a few months, because things never happen as quickly as you think). If this number is significantly more than the total cost of refinancing, you should probably go for it.
Also, I would recommend talking with several mortgage brokers. Take the quote from one, and see if the other can beat it. Then, if they do, take that quote back to the original, and see what they have to say. Yes, this takes some work on your side, but being that your house is likely the largest single investment you will ever make, it is worth the time an effort.
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