The payout comes to $2700 if I include $100,000 in cash in the form of a recast.
The difference is about $700 each month.
Right now, I think there are better ways to spend that $100,000 in liquid cash. I feel safe placing the money into an account or fund for a number of years because I have a good salary and roughly $500k in accounts that I could liquidate if necessary.
The mortgage amortization schedule, for example, is a little beyond my spreadsheet/calculator capabilities. Due to the front-loaded interest payments, I’m probably contributing as much as I can to the principle.
If putting $100K toward a mortgage recast results in $700 in monthly savings, that equates to an 8.4% annual return. It’s hard to find other investments that offer similar returns with minimal risk. I would recommend going for it.
When calculated against the returns of different securities, the IR is somewhat less significant if it is truly a recast. In essence, this might be seen as 100k @ x% (mortgage rate) vs. 100k @ y% (market rate minus taxes if you already have maximum 401k, SEP, or IRA). Analyze the difference between the interest rate on your present loan and what an annuity is receiving. This isn’t a perfect comparison, but it’s a good one. Overall, I would probably invest the $100,000 if your mortgage’s interest rate is less than 4%.
If the market had just crashed, I’d be all in. While the market is close to all-time highs, current valuations are quite high, and elections bring a lot of uncertainty. I don’t think you could regret freeing up $700 a month through a mortgage recast and reducing the interest on your mortgage. The opportunity cost of investing in the market right now doesn’t seem very appealing as an entry point.
That’s an insightful viewpoint. In times of uncertainty, it can be prudent to lower fixed costs. How do you balance the risks of entering the market with the potential for savings?
Mortgage company websites typically feature calculators that show how much faster you can pay off your mortgage by making a lump sum payment toward the principal.
Why not take out a refinance? If your credit is good, you should be able to get into the mid-5% range for an ARM loan with minimal out-of-pocket expenses that would be swiftly recovered by the interest savings.
Instead of recasting, focus on paying down the principal, which will reduce the interest you pay. If rates decrease, consider a cash-out refinance to invest in another property or another opportunity. Just a heads-up, at those levels, your interest is tax-deductible, so you can write it off during tax season if you itemize.