Homeowners can often reach a financial fork in the road when they must decide to either refinance their existing mortgage or sell their home. Each route has its respective advantages depending on your financial health, the mortgage rate market, and the future needs of your household.
Refinancing vs. Selling
When working to ease the financial burden of your existing mortgage, you have two options: refinance or sell. Refinancing your home allows you to renegotiate the terms of your loan and lower your monthly mortgage payment, while selling has the potential to put enough cash in your pocket to pay off your mortgage entirely. So, how do you decide between the two? Understanding a bit more about each option can help you determine which is best for you.
Refinancing Your Home
There are a few reasons why homeowners will typically refinance their mortgage, the most common of which being falling interest rates. Lower interest rates, after a reassessment of your mortgage, equate to lower monthly mortgage payments and significant savings over the life of the loan. If your finances have improved since you initially secured your mortgage—for example, your debt-to-income ratio has improved, or you’ve bumped up your credit score—you may be able to lock in a better rate with your lender.
Refinancing your home could also put cash in your pocket. “Cash-out refinancing” allows you to accept a mortgage for more than your principal balance and use the extra money at your discretion. Typically, homeowners will use such funds for large expenses, such as a major renovation or home improvement project.
Homeowners with Adjustable-Rate Mortgages (ARMs) will often refinance and switch to a Fixed-Rate Mortgage due to fluctuations in interest rates, locking in an established rate for the remainder of the loan term.
Refinancing in order to change the length of the loan can be beneficial as well. By switching from a 30-year mortgage to a 15-year mortgage, you could save a considerable amount of money on interest over the life of the loan. If you’re looking to lower your monthly mortgage payment, you could lengthen the loan term. For example, if you’ve been paying off your 30-year mortgage for ten years but are struggling to keep up, refinancing could lower your monthly payment. However, doing so means you’ll be paying for an additional ten years’ worth of interest.
Keep in mind that refinancing your home involves getting a new mortgage, so you’ll have to go through the qualification process again. Assess your financial health and equity before you apply. Once you’re ready to move forward, your Windermere agent can recommend a few trusted lenders or mortgage brokers to provide you with a quote.
Selling Your Home
Alternatively, you can sell your home. Your agent will conduct a Comparative Market Analysis (CMA) to determine the value of your home, accounting for the various factors that influence home prices including seasonality, location, market conditions, and your home’s features.
Although you stand to receive a lump sum of cash, selling your home comes with its own set of costs. Paying for repairs, home inspections, staging expenses, agent commissions, not to mention buying or renting your next home. This can add up, so it’s important to budget properly. Selling your home also means you’ll be uprooting the life you and your household have established there, so it’s important to have a plan for your next steps before the “For Sale” sign goes in the ground.
Originally posted by Sandy Dodge