$100k - Refinance or Invest? Need Lower Payments!

[maat55]

Depending on investments for income is like depending on a second income for your bills. Many people do this, but is not a wise thing to do. Depending on investment income, to me, is very risky. Just look at this years start. My wife and I live on my income and invest her income for retirement and paying cash for cars.

I do not like advising posters how to better apply a less safe plan without offereing a safer plan, IMO. There are many here that can offer risky advice, so I will usually just offer the safer advice. IMO.

[disneysteve]

Depending on investments for income is like depending on a second income for your bills. Many people do this, but is not a wise thing to do. Depending on investment income, to me, is very risky.

With this, I agree. Although the stock market may have a long-term average annual return of 10-12%, it doesn't generate that return in a straight line always moving upward (wouldn't that be nice?). There can be periods, even rather extended periods, where market returns are flat or even negative. If you are in a situation where you really need market returns to cover your living expenses, you could find yourself in a great deal of trouble.

[disneysteve]

I'm NOT new at buying and selling homes and moving. You make it a mountain, where I say it is a hill when done purposely.

If you've had good experiences and smooth transactions, that's terrific. Just understand that it isn't always the case, especially in current market conditions. My mother put her home on the market in June 2006. It finally sold in March 2007 after being under contract 3 times with deals that ultimately fell through, and several price reductions along the way, as well. Thankfully, she didn't need the proceeds from the house sale to cover her expenses in her new place. If she had, I don't know what we would have done.

I didn't mean to be attacking your advice as I enjoy your posts. I just didn't happen to agree with you on this point. I do think people need to be more attentive to whether or not they can afford a home BEFORE they buy it because once you are in the home, you're stuck.

[scfr]

Given your objective, it sounds like the refi is the best way to meet that.

I ran a calculator for a Fixed Income Annuity from Vanguard ... This is the only vehicle I know of to get a guaranteed monthly income from an investment ... Made some assumptions about your ages (you 33, wife 32) ... With a $42K investment, you'd get $203 per month without an adjustment for inflation (with an adjustment for inflation, it would be only $108/month) ... Even without the inflation adjustment, you still wouldn't reach your $291/month goal. [By the way, I'm not advocating getting an annuity. I'm just saying it might be a way to meet your objective.]

And now I'll add my off-question 2-cents:

If you are going to be going from two incomes to one, and with a little "McStink Jr" hopefully on the way, you really should keep a comfy cash cushion (such as 6 month's living expenses), just in case you lost your job or (God forbid) died. If you sunk everything in to the refi, how would your wife and little one get by?

Were I in your shoes, I'd probably set 6 months' expenses aside in CDs or a high-yielding MMA, use the rest of the cash for the refi, and then look for ways to either increase income a bit (2nd job for you, part-time work or a bit of side work from home for wife, etc) and/or cut your expenses to make up the difference.

Good luck! I love reading about people planning ahead, so I commend you for that!

[maat55]

[QUOTE]

If you've had good experiences and smooth transactions, that's terrific. Just understand that it isn't always the case, especially in current market conditions. My mother put her home on the market in June 2006. It finally sold in March 2007 after being under contract 3 times with deals that ultimately fell through, and several price reductions along the way, as well. Thankfully, she didn't need the proceeds from the house sale to cover her expenses in her new place. If she had, I don't know what we would have done.

Your right that it's not always easy to sell a home. I probably have been very blessed. Because I have lived on the edge before and with the stress it can cause, I choose to be much more conservative with my debt situations. Like everyone else here, I hope I never give advice that could hurt someone. I get my fundamentals from what I have learned from DR. It's made a huge difference in my finances, but it is very conservative.

[Snave]

maat55, Looks like you got the quote thing down pat!

[maat55]

maat55, Looks like you got the quote thing down pat!

Finally, I don't have to feel like an idiot.

[Scanner]

I was just laying the utility stock out there as an alternative income investment.

I know dividend investing has been passe since my grandparents generation but I do think there is a bit of a comeback in constructing a portfolio for income.

[jIM_Ohio]

OP here.

Thanks again for all of the insightful discussion and advice.

Let's not forget though, I'm not looking for the "best" thing to do with this cash, or a plan to change my existing spending habits.. I'm looking for the best way to take $100,000 and use it to supplement my income by $736 / monthly.

$736 is the amount my P&I would be reduced if I refinanced today and put the entire amount down. I just figure that there must be a btter way to acheive the same effect, and maybe have something left over in 30 years instead.

I can't really give you all the tax specifics requested. This is our first year in a house, and taxes have yet to go through the CPA, so I don't know if we get to deduct property taxes. Hopefully, because it's over 5000 per year.

I am a contractor (ex-Air Force), the guy's in the service make decent money over here, but not this kind of money.


In the last 12 months my wife and I have already spent another 20k on improvements to our home, so selling is really out of the question.

The improvements included a remodel of a bathroom, the addition of a patio cover and landscaping. I'm going to assume that the only upgrade which may increase the value of my home is the patio and cover because they were permitted and the tax man wants to know all about them..

I think the value of the home is a moot point though, considering my existing VA loan and eligibility for whats called an IRRRL. Basically, the VA loan doesn't require PMI no matter what your down payment is, and the IRRRL program will allow me to refi one VA loan with another.

Like a lot of voices in this thread I like the idea of a simple compromise. I think it would be beneficial to my wife and I to put 50k into the refi. Assuming todays rates of 5.7%, that would put my Principal and Interest at $1451/month down from the current $1896.

So that's $445 back in my pocket.

After closing costs, discount points, and the VA refi fee, that would probably leave me with $42,000 and a cash flow defecit (from my goal) of $291 monthly.

So, all I need to do is find out a way to make 42k net me $3492 annually.

Now yesterday, a co-worker put a bug in my ear. He told me to buy investment real estate.

At first glance this appears very interesting, but I know it's a whole different can of worms.

I think you need to relook at the whole budget. If your tax return is around $3500, then the 42k is not needed (to generate any income). In this case you could then invest the 42k for retirement.

I would agree you want to step back, post a budget, then have some of the budgeting experts here show you how to shave $300/month from a budget.

[zetta]

I don't have time to run the numbers, but when my DH and I last refinanced, we found that by taking a 10-1 ARM (ie fixed for the first 10 years), the interest rate was much lower than the 30 yr fixed, and it made enough difference in cash flow that I was able to stay home. Ten years is long enough to stay home until a couple of kids go to kindergarten, get some retraining, and reenter the workforce before the rate changes. It will depend on the current rates offered, but it might be something to look into.

[LivingAlmostLarge]

I'd refinance. Moving is a lot of headaches. And being solo with a new baby is hard. I doubt your wife will want to move.

Sorry Maat, good advice about buying a house that is affordable, but honestly the horse is already out of the barn. What's the point of closing the door?

That advice is unfortunately months too late. Sigh.

[maat55]

Sorry Maat, good advice about buying a house that is affordable, but honestly the horse is already out of the barn. What's the point of closing the door?

It's never too late to move in the right direction. Three years from now after struggling, moving is going to look real good, whats the difference between now and then, except three years of struggling. Again, comfortably living on one income is worth the trouble now.

[LivingAlmostLarge]

The refinance puts them in a payment potentially more in line with living. Also with the $100k and some DP, they might get it to where it's reasonable on one income.

Something to have thought about before. NOT now. And it's not worth the trouble. They should have considered it earlier.

I think they can manage it especially if they toss 20% DP and refi into a cheaper rate because of DP. Personally I would not have bought a house with two incomes if I knew I wanted to be a Stay at home mom.

[maat55]

I think they can manage it especially if they toss 20% DP and refi into a cheaper rate because of DP. Personally I would not have bought a house with two incomes if I knew I wanted to be a Stay at home mom.

[/QUOTE]

It's like a little boy at the grocery store, grabs a piece of candy his mom doen't want him to have, mommy say's put it back, little boy say's no I want it, mom being to lazy to take it from him and put back says oh alright and they go to the checkout.

[LivingAlmostLarge]

No Maat, your missing the financial point. They need to lose the least amount of money. By selling the house they will lose commission and moving expenses. Now say they could sell it by themselves (not possible right now in CA), they might only lose 3%. Still $9k.

Instead if they turned it into a refinance they would be able to stay in the house. I think from reading the thread, the numbers work out that they can manage going from $2400 to $1300 using scanners suggestion of 20% DP, 30 year fixed @ 5.5%.

Reasonable decrease of almost 50% in payment. Also leaving them a cushion of $40k.

What is his wife income of their combined gross income of $105k? If it's $20k, then they are down to $80k and a payment of $1300/month. That's $1300/6666 = 19%. Much more manageable than 25%.



Also with their income