Refinance or Large Mortgage Payment?

Question

The GF and I are looking to buy a house.  She's already sold hers and plans to use the profits as down payment on a new house.  After a few months, when I sell my current house, what would the best option be -

• Use the profits from the sale of my current house to refinance for a lower monthly mortgage payment on the new house?
• Use the profits from the sale of my current home to make a large mortgage payment?
• Just put the money in savings?
• Other?

Steve Vaughan · Answer

After you sell there won't be a mortgage or anything to refinance so the question confuses me.

Keep your profits and mortgage pay-downs separate until you're married.  No payments on each other's debt. Legally you are just partners without written agreements and / or roommates.

Joe Splitrock · Answer

Refinancing is a bad idea because of the loan closing costs which could be several thousand dollars. You can make a lump sum payment on the mortgage and ask the mortgage provider to recast the mortgage. They basically readjust the amortization table to keep the full payment term but adjust the payment down to reflect the lower amount owed.

You could make a larger mortgage payment or just make a large lump sum payment. Either way, make sure you stipulate on the extra payment that it is principal only. Paying down principal will reduce your interest and result in early mortgage pay off.

Putting the money in savings won't do much for you at current interest rates. I would either pay down the mortgage or invest the money. You could save up for a rental property or invest it in stock market index funds.

You mentioned your girlfriend is making the down payment. I am not sure what arrangement you have with her, but hopefully it is some type of 50/50 agreement. In that case, make sure she is reimbursed for her half of the house. Even if you plan to get married and stay together forever, make sure you are both equally contributing. That is for BOTH of your protection.