Being a numbers person, here is how I would analyze the situation and try to make a decision based on the numbers and my overall goals in Real Estate ownership. I had to make some assumptions, so please know that my financial model is based on these assumptions which may or may not become reality in the next 4 years. They are simply educated guesses.
Approx interest paid over 48 months @ 6% on 520K = $121,000
Approx interest paid over 48 months @ 4.5% on 420K = $73,000
Total Interest Savings in you refi now = $48,000
Interest you could earn on Investing $100k in a 3% T-Bill over 4 years = $17,000
Min cost to refinance if you can get the 4.5% loan @ 0 points = $3,000
Total lost income on $100k cash on hand + cost to refinance = $20,000
Grand total savings as a result of refinance = $28,000
Let's assume your townhome appreciates 10% over the next 4 years and you sell it for $575k
Let's assume the dream home you are looking to purchase costs $700K today and $770K in 4 years due to the same 10% appreciation in value. Based on these assumptions you will be paying $20,000 more to move from your existing home to your desired home in 4 years.
The big unknown is where interest rates will be in 4 years? If they are back to 5.5% assuming that you use your $28,000 in interest savings + your equity in the house, less selling and new home purchase closing cost expenses you will have approx $122K to purchase and finance the rest ($620K) your monthly payments will be $3,520/month for 30 years starting in 2015
Now let's assume you purchase the upgraded home @ 700K today and have to pay $15,000 to Make the sale of your existing home happen without a short sale. Then take the remaining 85K and purchase your dream home for 700k (10% down + closing costs and 80-10 financing) Your monthly payments for the new home for a 30Yr 1st TD of $560k @ 4.5% and 15 Yr 2nd TD of 70k @ 7.5% would be $3,486/month for 30 years starting 2011.
There are some other considerations, i.e. your tax base will be lower on the new home if you buy now. Can you make the $3,486/month Payment? Not knowing your original loan amount, I will assume you are currently paying between $3,200-3,300 per month P&I on your existing mortgage.
I hope you find some of this information helpful.
Home Sales Maker