WWYD? Re: Refinance

[love1999]

We're going to refinance and are having trouble deciding between a 20 and a 25 year loan. We've been in the house for 5 years. 20 would be at 3.5% and 25 would be at 3.625%. The 20 would save us $160 per month compared to what we pay now and the 25 would save us $293 per month. We'd pay $440 more in closing costs on the 25 over the 20. We may start a family next year and would need to pay for daycare (infant daycare in our area runs $1200-$1500 a month...a mortgage payment in itself). Emergency fund is taken care of. So we could take the money we'd be saving and either a) pay extra principal on the mortgage or b) open and contribute to a Roth IRA. We both contribute the max our companies will match in our 401ks right now but that is our only retirement savings at the moment. We're both 31. So does it make more sense to shorten the loan and avoid the interest or take the longer loan to possibly contribute more to retirement? We are wavering between them as well since we wonder if we might be better off to be not as committed to a mortgage (i.e. take the lower monthly payment of the 25) since we don't know how taxed we'll feel about the additional expense of daycare when the time comes. Thanks for listening if you've made it this far! Appreciate any advice!

[love1999]

We don't have 1x salary in our 401ks. I went to grad school so I started late in contributing (I was just a month or two shy of 26 when I started my 401k) and then DH didn't contribute for a few years because of where he was working. We know we're a bit behind which is why we're considering trying to bump that up versus pay off the mortgage earlier.

[jenjen]

I would do the 25 yr. You can always pay extra towards it if you want but it would be nice to have the wiggle room to just make the minimum payment when you can't. I don't think the differences in interest rates are enough to go for the shorter term- 3.625 is awesome!

[love1999]

Yeah, I think we're kind of leaning towards the 25. At first we were all about the 20 but the more we've been thinking about it, we think it might be nice to have the wiggle room just in case, especially with the economy the way it is. Then we could take the extra every month and either pay down the principal, add to a Roth or even split between the two options. I looked at the amoritization schedules and if we put the extra up to what we're paying now towards the mortage every month for the life of the loan there is only a 3 month difference between how fast we'd pay off the 20 versus the 25.