Should I Move or Refinance?
Let us walk you through the pros and cons of each option.
To help ease expenses or improve living conditions, many homeowners go back and forth on whether it’s better to move or refinance their existing mortgage. It’s an especially perplexing decision at times when homes are what’s referred to as “equity-rich,” where a mortgage is 50% or less of a property’s market value.
If you’re currently debating whether it’s best to move to or refinance, here’s what you should know:
Pros and Cons of Refinancing
Refinancing is an appealing option for homeowners who want to take advantage of low interest rates and reduce their monthly mortgage payments. Others take part of the equity in cash and keep their payments at their existing amount.
Depending on your current interest rate, refinancing can help you save hundreds of dollars every month. For instance, if you have a $200,000 fixed-rate mortgage at 6% and refinance it to a 3% interest rate, your payment goes from $1,200 per month to $845, helping you save $355 a month or over $4,000 per year.
On the downside, refinancing can be a little complicated, particularly if your credit score is less than ideal. You also typically pay closing costs on the new loan, which tend to eliminate your first year’s savings. Some lenders do offer no-cost refinancing, but often that means they include the fees in your loan amount. Lastly, if you’re refinancing so you can use the funds to pay off other debt, it’s essential to have a plan to avoid overspending in the future.
Advantages and Disadvantages of Moving
Over the past 15 years, the typical single-family home grew in value by approximately $150,000. There’s a lot to be said, then, for using your current home’s equity to put a down payment on your dream home while still maintaining your existing mortgage payment or something close to it.
Let’s say you bought a house for $215,000 15 years ago. The typical monthly payment back then would be about $1,215. Today, your home might be worth $366,000 or more. If you sell it for $366,000, you’d be left with about $131,000 to put down on a new house ($151,000 profit minus about $20,000 in seller’s costs). If you buy a new home for $450,000 and take out a mortgage for $320,000 with a 3% interest rate, your monthly mortgage payment would be about $1,350, only $135 more than your payment on your existing house.
Ultimately, the decision to buy a new home has to do with lifestyle and financial considerations. If you plan to remain in your existing home for several years, or if you’re currently facing financial strain, it might be best to refinance. On the other hand, if you’re looking to move into a larger or smaller home or want to move to a different location, you should consider buying a new home if it makes financial sense.
Should You Move or Refinance?
The real estate and mortgage markets are constantly changing. Home prices and values and mortgage rates can fluctuate according to demands and Fed rate changes. If you’re trying to decide whether it’s better to move to refinance your existing home, talk to a residential real estate agent at Coakley Realty who has years of experience and expertise in the DC metro area’s housing market.
Contact us today to get started! One of our agents will be happy to offer advice specific to your situation.