So I've been fretting about refinancing our mortgage.  It's a very good deal.  To save $700/month for the first 84 months is a good deal but it's beacuse it's less principal and less interest.  The cap is 7% over the lifetime of the loan.  But I am moving from a fixed rate 2.875% to a 2% ARM.  So the question is what do I do?  Being analytical my DH said to break down all parts of the refinance. 

First let's start with over the 84 months we will save $47,005.08 interest over that time.  That's a lot of money.  If we assume 5% interest after 7 years on the balance the difference in interest is $1253/month and it will be 38 months to break even at 5%.  This is assuming we do not refinance before the end of 7 years.  So we definitely at 10 years and 2031.  This makes things interesting.  I'm not sure we plan on staying in this house long term.

Second part of the equation is the refinance will bring us to a savings of $700/month.  What would happen if I actually invested that $700/month into and SP index fund or maybe even a riskier stock?  Using the 5% assumption after 7 years I will have $70,230.60.  That's a lot of of money to use for the higher interest.  In fact it buys me another 56 months before I will lost money if the average interest rate is 5% or higher.  That is 4.5 years and brings me to 2035.  

I guess it makes sense to do the refinance.  But I have to commit now to saving that $700 month and investing it.  Maybe this is the challenge? Every month I write about if it's growing and how it's doing?  I track my $700/month savings.  I am thinking maybe Robinhood and then buying fractional shares and just investing $700/month. What will happen?  

Want to weigh in?  I am sort of excited after writing this about the challenge.