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Refinancing—Again

James McGlynn, 2:02 pm ET

I HAD A NEW HOME built in 2017. I financed it with a 30-year mortgage at a 3.875% interest rate.

Early last year, when interest rates dropped due to the pandemic, I suggested that readers refinance. I took my own advice, replacing my 30-year loan with a 15-year mortgage at 2.99%. The cost of refinancing seemed well worth the reduction in my loan interest rate.

Two months ago, I saw that mortgage rates had continued to decline, so I refinanced again. My existing mortgage company gave me a new, 15-year loan at 2.375%. I didn’t want to pay the upfront costs to refinance, but I didn’t have to: My current lender waived them because I was already a customer.

For those keeping score at home, the interest rate I pay has fallen 39% over the past four years. I started with a low-rate mortgage—and wound up with one that’s rock-bottom.

Readers may wonder whether I should pay off my mortgage entirely. I’ve decided I’d rather have more liquidity—by keeping more money in cash. True, my cash account pays just 1.35%, a lower rate than I owe on the mortgage. But I see my savings as insurance against an emergency. On top of that, with a healthy cash balance, I won’t be tempted to draw on the equity in my home for some big expense.

No one knows if and when interest rates will rise again. But I’ve locked in low rates for the duration. If short-term rates do rise, my mortgage payment won’t change. My cash account, however, may pay me more money.

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Harold Tynes
Harold Tynes
27 days ago

No mortgage here but I do have cash in the Toyota Notes. I’ve invested in similar products over the years such as GE Capital. If I feel the winds shifting, I move the money to an FDIC insured account. I can ACH the cash out of Toyota in 24 hours.

Andrew Forsythe
Andrew Forsythe
28 days ago

Well done. I never thought I’d see 2.375% mortgage rates in my lifetime.

And yes, indeed—where can one earn 1.35% on cash?

The Drake
The Drake
28 days ago

And where are you getting 1.35% on your cash if you don’t mind sharing?

Randy Dobkin
Randy Dobkin
28 days ago
Reply to  The Drake

I just got a bump to 1.1% at Marcus, base rate 0.5%, 3 month referral bonus 0.5%, 2 year AARP member bonus 0.1%.

Andrew Forsythe
Andrew Forsythe
27 days ago
Reply to  Randy Dobkin

Thanks for the tip.

Last edited 27 days ago by Andrew Forsythe
James McGlynn CFA RICP®
James McGlynn CFA RICP®
28 days ago
Reply to  The Drake

Corporate notes from a “captive auto finance company”. Non-FDIC insured but for me functions as a money market account.

Andrew Forsythe
Andrew Forsythe
28 days ago

Thanks, James. Would that be Toyota IncomeDriver Notes? IncomeDriver Notes | Toyota Financial Services: Income Driver

I’ve been tempted by those. But even though the risk of default by Toyota may be tiny, I’ve hesitated to introduce any risk at all into my “safe” funds. We all remember 2008…

That said, these Toyota notes are worthy of their own article.

James McGlynn CFA RICP®
James McGlynn CFA RICP®
28 days ago

I hesitate to confirm that as they are not FDIC guaranteed and individuals want their safe funds to be backed by the FDIC. But I prefer to earn 1.35% with potential risk than .05%.

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