refinancing mortgage question

[frugal is fun]

I need advice.

I currently owe $118,000 on a 30 year fixed mortgage at 4.375% having paid 2 years on it.

I can refinance down to a 15 year for 3.75% increasing my monthly payment by $225.

here's the issue. I don't readily have the $225 a month. I do have a car payment of $231. I do have enough in cash to pay off the car and then use what I was paying for the car to make up the difference in the new mortgage amount.

I also have mutual funds/investments that I can arrange to sell off enough each month or use interest that I make to pay myself rather than buy more funds to supplement the $225.

My FA is advising that I don't pay off the car, that I use the money from my "funds". I expressed my concern about spending money that I don't have and this is her response...

"I agree with that old adage however we will use money that you already have to make this work. I would rather reverse dollar cost average out of your ONE account to help you with monthly expenses than to take a full lump sum out at once to eliminate the car loan.

Rest assured that if this won't ultimately end up helping you in the long run or will set you behind on your goals I will let you know.

I will take a look at the numbers here and we can talk about the options and make a decision from there."

I owe $10,200 on my car at 2.39% for 48 months.

...thoughts?

[SewFrugal]

Have you considered how much it will cost to refinance (points/fees ect.)? Will you pay those costs with cash or absorb it into the new loan? It's not a huge difference in interest rate (Although knocking 15yrs off you loan is huge). Have you looked at making the extra payments on your 30 yr loan (I realize the car is still an issue) and ammitorizing it to a 15 year loan and seeing how that compares to the cost of refinancing?

I'm by no means a financial expert, but I've been down this road before. I would just really look hard at all those numbers before making a decision. Hope this helps.

[frugal is fun]

I'm waiting to hear back about the closing costs, I'm not sure if the number I was quoted includes the closing costs in the overall refinancing amount or if that is in addition. But I will find out hopefully by the end of the week.

And a few of my friends have said the same thing about just adding extra to my current monthly payment. I honestly have not done the numbers.

I'm 41 yrs old so I will be 69 with the current 30 year loan. I would be 56 with the 15 year load and my son will just be graduating college.

[stinkbug]

I would just start throwing all your extra towards the principal of your current loan. I always heard it's not worth a refi unless it is at least 1.5 % less interest rate.

[frugal is fun]

ok so any thoughts on either paying off the car or using money from my "funds" to throw at existing mortgage?

[QM]

Where's Greebo when you need him?

[mndtrp]

I would just start throwing all your extra towards the principal of your current loan. I always heard it's not worth a refi unless it is at least 1.5 % less interest rate.

I've heard something of the same.

It sounds like it will be stretching you kind of thin. I would probably pay extra on the car, but without taking money out of your funds. Unless your funds are sufficient for your retirement. If so, pay off the car, and then put extra towards the mortgage.

[craftypam]

What is the difference in interest between your now mortgage and what the new one will be? If not much I would just pay any extra money you have on the principle. Do you want to be that strapped?
Most of the time when I refinanced I just kept the 30 year and paid extra on it. If you take on a bigger payment and can't make it you'll get behind. And your interest rate on that car loan is really low.

[Greebo]

Where's Greebo when you need him?

Not at your beck and call.

[Greebo]

I need advice.

I currently owe $118,000 on a 30 year fixed mortgage at 4.375% having paid 2 years on it.

I can refinance down to a 15 year for 3.75% increasing my monthly payment by $225.

here's the issue. I don't readily have the $225 a month. I do have a car payment of $231. I do have enough in cash to pay off the car and then use what I was paying for the car to make up the difference in the new mortgage amount.

I also have mutual funds/investments that I can arrange to sell off enough each month or use interest that I make to pay myself rather than buy more funds to supplement the $225.

My FA is advising that I don't pay off the car, that I use the money from my "funds". I expressed my concern about spending money that I don't have and this is her response...

"I agree with that old adage however we will use money that you already have to make this work. I would rather reverse dollar cost average out of your ONE account to help you with monthly expenses than to take a full lump sum out at once to eliminate the car loan.

I could not disagree more.

1) Paying off the car loan *NOW* eliminates IMMEDIATELY all the interest you're paying on an item that will do nothing but lose value and cost you money. Voice of repeat experience here - paying interest for a car that only goes down in value and costs to maintain is STUPID (3 time loser here).
2) Refinancing down half a point, and more to the point, to a 15, is a GREAT move because you'll substantially reduce the long term interest you will pay on that remaining $100k by a BIG amount. (Tell me how many years you have left on your current mortgage and the P&I portion of your current payment and I'll tell you exactly how much)
3) Your broker will make a commission on every sale for the purpose of DCAing your currently depreciated market values. If you didn't have the $$ on hand I'd say do ONE transaction and pay off the car today, but since you have $$ on hand, leave that money alone to recover.

[frugal is fun]

I have 28 years left on the mortgage.

principal balance - $117,753.87
monthly payment - $1087.07
amount applied toward principal - $167.55
amount applied toward interest - $466.77
amount to Escrow - $452.75

I have made 24 of 360 payments

not sure if this matters but the house was appraised at $155,000 two years ago, purchase price $152,000.

[Greebo]

I have 28 years left on the mortgage.

principal balance - $117,753.87
monthly payment - $1087.07
amount applied toward principal - $167.55
amount applied toward interest - $466.77
amount to Escrow - $452.75

I have made 24 of 360 payments

not sure if this matters but the house was appraised at $155,000 two years ago, purchase price $152,000.

You've paid some extra already, haven't you? Your payment doesn't line up with the terms - too high - so you've knocked some time off already.

But ok using these numbers tweaking time remaining to match the payments your estimated interest you'll pay on this will be $79,011.94.

Go to a 15 at 3.75% using the exact same balance (pay closing out of pocket) and your total interest paid on the NEW loan if you pay no extra will be $36,385.99.

Minimum savings: $42,625.95

[frugal is fun]

Thank you Greebo! That's amazing!

Now to figure out what to do with that dang car!

I know you recommend paying it off now and I do totally get that. I'm just afraid!! LOL!

I have about $7,500 in cash and I have about $17,000 in "funds". I have a separate 401K that had over $100,000 in it the beginning of the week and I will be getting a pension so I'm not really concerned about retirement yet. (I'm 41)

My job is as stable as any job can be. My company's financial situation has actually become more stable over the past two years so no worries there. However between my retirement, my sons college, the mortgage, the car and basic living expenses, I'm not saving a whole lot to just pure savings...about $250 a month. I have no credit card/consumer debt.

[Greebo]

Don't touch the 401k. Use the $7,500 cash and $2,700 from your NON 401k mutual funds to pay off the car.

You will then be debt free but the house, and then you start focusing on your FFEF.

[mndtrp]

Are your mutual funds not beating the interest rate on your auto? I guess it depends on if you are looking short term or long term. If I was making a 10% return on my mutual funds, I likely wouldn't pay off my car in one fell swoop.