Should You Refinance Your Mortgage or Sell Your Home?

Refinancing Mortgage vs. Selling House

When determining the best real estate moves for your future, there are endless options to help you achieve your long-term financial goals. Refinancing your mortgage to lower your monthly payment or selling your home are two ways to change your finances if your current real estate investment presents a burden. You can strategically use the equity gained to optimize your financial situation for refinancing. Refinancing doesn't impact your ability to sell your home later down the road. Read on for important considerations to help you find the best fit for your financial needs.

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What's The Difference Between Selling House & Refinancing Mortgage?

Mortgage Refinancing vs. Selling Your Home
CriteriaRefinancingSelling
Pros
  • Potentially lower monthly payments
  • Ability to switch mortgage types
  • Access home equity for large expenses
  • No need to move out
  • Opportunity to profit from property appreciation
  • Chance to downsize or upgrade your living situation
  • Relocation flexibility
  • Eliminate existing mortgage payments
Cons
  • Closing costs and fees
  • Extending the life of your loan
  • Potential for higher interest rates
  • Requirement to have enough home equity
  • Costs associated with selling (e.g., realtor fees)
  • Market-dependent; may take time to sell
  • Moving costs
  • Potential for capital gains tax

When deciding between selling your house and refinancing your mortgage, it's crucial to understand the fundamental distinction between transferring ownership to a new buyer and obtaining a new loan with modified terms. 

Refinancing focuses on adjusting loan terms for financial benefits, such as securing a lower interest rate, extending the loan term, or accessing equity for renovations or investments. Unlike a reverse mortgage, which provides access to equity, homeowners don't receive any money for refinancing.

On the other hand, selling your house involves changing living arrangements or cashing out on property value, providing a lump sum of cash but also incurring additional costs like real estate agent commissions and moving expenses.

While refinancing your mortgage can lead to lower monthly payments and reduced interest rates, selling your house may offer a quicker way to access funds. Both options have pros and cons, and the decision ultimately depends on your needs, long-term plans, and the current housing market outlook. Before deciding, consider how each choice aligns with your financial goals and lifestyle preferences.

When to Refinance

It may be time to consider refinancing your home if you meet any of the following: 

  • If you're struggling to make payments
  • Want to shorten your mortgage
  • Search for a lower interest rate than when you bought
  • In need of a cash-out refinance

Assessing your financial goals and current market conditions can help you determine the optimal timing for refinancing. Keep an eye out for these key points to decide when refinancing could be most advantageous for you.

You're Struggling to Make Payments

Are you struggling to make your monthly mortgage payments? Refinancing could be a viable solution to alleviate financial stress. By refinancing, you can reduce your monthly payments, making them more manageable within your budget. Renegotiating the terms of your loan through refinancing might enable you to secure a lower interest rate or extend the loan term, providing breathing room for your finances.

Proactively seeking refinancing options before facing difficulties can help you avoid the consequences of missed payments, protecting your credit history and overall financial stability. Choosing to refinance early on can help you stay in the house long enough to sell for the best price.

You Want to Shorten Your Mortgage

Consider refinancing your mortgage if you aim to pay off your loan faster and build home equity more rapidly. Shortening your mortgage term can lead to higher monthly payments but substantial interest savings in the long run. By opting for a shorter mortgage duration, you can achieve significant financial benefits over time.

Evaluate your financial objectives to determine if shortening your mortgage aligns with your goals. This strategy is particularly advantageous for individuals looking to increase their home equity quickly and reduce the overall interest paid on the loan. If you prioritize building equity and paying off your mortgage sooner, refinancing to shorten the term could be a wise decision to secure your financial future.

Interest Rates Are Lower Than When You Bought

When interest rates are lower than when you initially purchased your home, it may be an opportune time to consider refinancing your mortgage. Lower rates can lead to reduced monthly mortgage payments—potentially freeing up more of your budget for other expenses or savings.

By timing your refinance when rates are favourable, you could save a significant amount of money in the long run. To determine if refinancing is a wise financial move, compare the current interest rates with the rate you locked in when you bought your house.

Taking advantage of lower rates post-purchase can help you save money over the life of the loan, making it a smart financial decision for many homeowners.

You Want a Cash-Out Refinance

If interest rates are lower than when you purchased your home and you're considering a cash-out refinance, it's important to understand the basics and mechanics of this financial option.

With a cash-out refinance, you can borrow a larger amount at a lower interest rate by replacing your existing mortgage with a larger one. The additional amount borrowed is the difference between the new and old mortgage amounts, allowing you to access up to a limit of 80% of your home's value.

This extra cash can be used for various purposes, such as debt consolidation, home improvements, or investments. However, it's crucial to be aware of potential penalties for early cash-out refinances and the impact on your mortgage balance and monthly payments.

When to Sell

If you're relocating to a different city or downsizing your home, it might be time to consider selling your house instead of refinancing. Evaluating your reasons for selling, your current housing needs, and the potential financial gains can help you determine the optimal timing for the sale.

Whether it's a job relocation, a lifestyle change, or maximizing your investment, understanding your motivations can guide you in deciding when to move.

You're Moving to a Different City

Considering moving to a different city? If you've recently refinanced your home and are planning a relocation for work or lifestyle reasons, selling post-refinancing could be advantageous. However, it is also important to be aware of any restrictions or penalties. 

By selling after refinancing, you can utilize the equity gained from the transaction to facilitate your move to a new city. Timing is crucial to ensure a smooth transition and maximize the benefits of refinancing and selling.

To strategize the optimal timing for selling after refinancing when moving to a different city, it's advisable to consult with a real estate agent. They can provide insights into market conditions, pricing strategies, and the overall process to help you make informed decisions for your move.

You're Ready to Downsize

When ready to downsize your living space, selling your house can strategically align your home with your current needs and lifestyle. If you've recently refinanced but now find your home too large or costly to maintain, downsizing can free up resources for a more suitable living situation.

By selling after refinancing, you can capitalize on potential equity gains and reduce your mortgage debt, helping you streamline your finances and potentially increase your savings. This strategic move allows you to optimize your housing situation based on your current circumstances, ensuring that your living space better suits your needs and financial goals.

You Want to Get the Best Price For Your Home

Wondering how to time the sale of your home for the best possible price? If your home's value has significantly increased, selling might be the right move to maximize profits.

When the market is hot, and demand is high, it could be an ideal time to list your property and set the right price to attract competitive offers. Working with an agent can also help you navigate negotiations and potentially secure a better selling price than if you were to refinance.

Keep an eye on local housing market trends and economic indicators to gauge the best time to sell. By staying informed and strategically planning your sale, you can increase your chances of getting the best price for your home.

Is Selling or Refinancing Better For You?

Ultimately, the decision to sell your house after refinancing depends on your individual goals and financial situation. Consider factors such as market conditions, long-term plans, and potential costs involved. Whether you choose to refinance or sell, make sure to weigh the pros and cons to make the best decision for your future.

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