re: Refinance gurus- I'm looking to refinance my mortgage- will it be worth it?

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Don't you nean if the inflation rate is no less than 3%?

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What I mean is that if you think the inflation rate is going to be x% for the next 30 years (more or less), then is a bad idea to borrow for less than that rate after tax at the cost of shortening the loan term.

Let's say you have a choice between borrowing at 4% for 30 years, or 3% for 15 years (I'm making up numbers here). If you itemize deductions at the 25% bracket, then your choice is 30 years at 3% or 15 year at 2.25% (after tax rates). And let's also assume that the rate of inflation for the next 30 years will be around 3%.

Under these conditions is makes no sense to take the 15 year mortgage because your return on investing the higher monthly note is negative. The 30 year is great because you are borrowing at a rate exactly equal to the rate of inflation. If your interest rate = the rate of inflation, you are paying nothing for the privilege of borrowing it.

Full disclosure - the long-term rate of inflation is actually closer to 2% but my point remains the same. People seem to think that you should cut your rate to 0 and prepay to get there. This is not correct - your rate should be close to inflation, not to zero.