What to do with mortgage savings?

[Anonymous]

We have an ARM that is about to adjust, dropping our housing costs by about $12,000 this year.

Should I divert the monthly difference to my stock broker? (She made me 10-14% on various mutual funds last year.) Or keep paying the same amount to the mortgage company and have it directed to the principle?

I don't know how to figure out the math on this.

I'm really good at other things, I swear. Just not math and money.

[Anonymous]

Why not refi to a fixed rate?

[Anonymous]

The "smart" answer is to divert to stocks. You'll earn higher returns than the cost of the mortgage

[Anonymous]

Refi to a fixed rate. You do not want an ARM in a rising rate environment.

[Anonymous]

Anonymous wrote:Why not refi to a fixed rate?

Because it would be a jumbo, at a full point (or more) higher than the adjusted rate of the ARM.

[Anonymous]

Anonymous wrote:Refi to a fixed rate. You do not want an ARM in a rising rate environment.

Intelligent folks disagree about the rising nature of the rate environment. It's a gamble, but not a mindless one.

[Anonymous]

I read an interesting thing on Bogleheads (I think) that said you should pay down principal if the value of your home is less than 33% of your networth. If not, then invest in the market.

I thought that was an interesting benchmark.

[Anonymous]

rates will be low for 3-4 years i wouldnt worry about it

[Anonymous]

actually with the low rates I would buy another house and rent it out

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why not refi to a fixed rate?

Because it would be a jumbo, at a full point (or more) higher than the adjusted rate of the ARM.

Of course it is going to be higher. But what about ten years from now? Rates may stay low for 2-3 years, but not 10-30 years. You would be a fool not to switch to a fixed rate.

[Anonymous]

I would say pay down your mortgage so it's no longer a jumbo (if you can) and re-fi at a fixed rate.

[Anonymous]

Definitely look into refinancing to a fixed rate. When interest rates adjust upwards as they inevitably will, will you be able to afford additional payments?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why not refi to a fixed rate?

Because it would be a jumbo, at a full point (or more) higher than the adjusted rate of the ARM.

Of course it is going to be higher. But what about ten years from now? Rates may stay low for 2-3 years, but not 10-30 years. You would be a fool not to switch to a fixed rate.

But I can save enough over the next 2 years to pay down and get it under the jumbo rate and STILL get a good rate for the next 15 or 30 years. So I would be a fool to lock in now when I'm only a year or two from qualifying for a much lower rate. Assuming market rates stay low. Always assuming...

But really, my question was about the math. Am I better paying down the principal or putting it in the market and hoping my broker keeps up her hot streak?

[Anonymous]

in your circumstances, I would put te money towards principal in order to bring the amount of the loan down so you can refinance to a conforming loan as soon as possible. And about your stock broker, if you absolutely don't feel comfortable setting up your own investments, you may want to continue using her, but note that 10-14 percent in the past year is th eminimum to be expected -- the S&P was up over 13 percent last year so passive investing in mutual funds would have gotten the same results as your broker.