There are many reasons to refinance or sell your home. Some homeowners consider these options to avoid accumulating debt as a result of a loan. Others want to downsize their living space or access their home's equity. Both refinancing and selling provide the opportunity to alter the terms of an existing loan. These choices offer homeowners opportunities that can lead to unique long-term advantages or disadvantages.
According to investopedia.com, Refinancing is the process of paying off an existing loan and replacing it with a new loan that includes the debt of the old one. Many people refinance by finding a new lender with better terms or interest rates. This lender may also offer homeowners the option to change their loan type from variable- rate to fixed rate, establishing a constant interest rate each year. Many homeowners choose this option to avoid relocating, and remain in their current residence. This is beneficial for those who want to remain within certain school districts or simply have strong ties to their communities.
While refinancing allows homeowners the option to remain in their homes and avoid the hassles of moving, this may not be a good option for those who do not plan on residing in their homes for more than 5 years. According to Ashley Eneriz at money.com, selling your home in fewer than 5 years after refinancing may prevent you from benefiting from lower interest rates. Refinancing can be an expensive process due to the heavy paperwork and expenses. It may take time before the savings begin to outweigh the expenses. Changing your mortgage lender can also increase the required monthly payments for homeowners looking to shorten the duration of their loan. If the overall monthly mortgage payment becomes too high after refinancing, some homeowners have no choice but to sell their homes.
Selling your home and moving into a new property offers the opportunity to pay lower interest rates and cheaper monthly payments. According to Amplify Credit Union, selling your home can help to reduce or even eliminate your loan. Following a sale, some homeowners receive a payout from their previous home based on the portion that they own. This is determined by the amount of payments that have already been made towards the loan. This portion is referred to as a home’s equity. Using the equity from your old home and putting it towards your new mortgage assists in paying off the loan and reduces debt in the long run.
While it may seem ideal to sell your home and accept a mortgage with lower monthly payments, there is often increased competition for less expensive homes according to the mortgage consultants at go amplify.com. Additionally, not all prospective buyers qualify for lower interest rates when looking for new homes. According to homelight.com, lenders typically review the financial history of applicants including credit history, current wages, and the amount of debt owed. Before deciding to sell, ample research should be done to determine the options available to you regarding your home.
Both refinancing and selling a home offer the opportunity to renegotiate or back out of the current terms of a mortgage. These options have advantages and disadvantages that differ depending on the needs of the homeowner. A trusted real estate agent should always be contacted to guarantee all options are taken into consideration and to ensure the best decision is made regarding your home. For all your real estate questions, give Rent it Network a call.