Dear Liz: It is time to refinance our hybrid mortgage loan, which was fixed for five years but is about to become adjustable. My husband and I have saved around $78,000 in the bank. We owe $191,000 on our mortgage and our home’s current value is $430,000. Should we put our savings toward the refinancing (to borrow less money) or do something else with the money? My husband has maxed out his annual 403(b) retirement contribution, but I have not.
Answer: You have sufficient equity in your home to attract plenty of lenders, as long as your credit scores are good. Locking in today’s low interest rates makes sense, but reducing your mortgage balance probably doesn’t.
In the long run, you’re likely to be better off taking maximum advantage of any tax-deductible retirement plans. You’ll get a tax break upfront for your contributions, and the money can grow tax-deferred until retirement. You also should keep an emergency savings cushion equal to at least three months’ expenses — preferably six months’ worth.
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