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Should I Refinance Or Sell?

A veritable real estate chicken or egg question, the conundrum of whether to refinance and remodel, or, sell, is one that many homeowners face. The answer usually comes down to very real facts and is mostly defined by budget and lifestyle. How much can be afforded and what's the most realistic choice isn't always easy to decide because you're probably emotionally attached to your home. It's likely full of memories and then there are other considerations to take into account, and, these factors are quite important.

Chief among these are your neighborhood, your commute, your home's value, the local market, and of course, affordability. Each must be examined and carefully weighed. Generally speaking, it's a good idea to refinance to lower your monthly mortgage payment. At this time, with interest rates being near record lows, refinancing is even more attractive, but that also means a new mortgage will come with a lower rate.

No matter which you choose, you'll have to pull money out-of-pocket because of the associated costs. Refinancing and remodeling, by its nature, means having to pay closing costs, permits, and contract labor. Selling also involves closing costs, but also moving expenses, inspections, earnest money deposit, and various fees. In the end, the best choice is based, not just on cost, but over the long term.

When should I Consider Refinancing a Home?

As the nearby quote from the National Association of Realtors points out, refinancing isn't always the best option. However, there are times when you should refinance your home. Circumstances that make refinance a sensible option are when you have an adjustable rate mortgage, which of course, can clean out your wallet at any time. If you have one of the now defunct interest only loan products, this too, is a reason to refinance.
Homeowners typically refinance their mortgages to save money, but it doesn’t always work out that way. If you’re not sure that you’re getting the best deal, that your home will appraise highly, or if you’ll even qualify, you may end up wasting time and money.

Yet two more situations refinancing generally makes financial sense is when you want to build equity at a faster rate and go from a 30 year mortgage note to a 15 year mortgage, and, when your current home loan has a high interest rate. All of these situations are ample reason to refinance, but, that still doesn't necessarily mean that refinancing is the right way to go. Other considerations will still dictate when to refinance and remodel and when to sell your home.

Should I Refinance or Sell My Home?

Whether you ought to refinance or sell comes down to answering a few questions and being honest about your future plans. What and when you plan to do in the next three to five years is critical to making the right decision. In fact, time is one of the most important factors. If you plan to sell in the next three to five years, it might not make financial sense, depending on how much equity you currently have in your home, to refinance. Here are some more factors to take into account:

  • Your cash and equity positions. You probably know if you have little equity, or, less than 20 percent, you won't be able to avoid paying private mortgage insurance. What's more, refinancing is the same thing as getting a new mortgage. You have to qualify for a new loan, and, if you have open lines of credit, even if your FICO score is good, means your debt-to-income ratio might be too high. While refinancing can be a way to pull out a little cash to pay down debt and remodel, it will leave you in a position where you'll have to stay at least five or more years.

  • Your current neighborhood. The neighborhood in which your home is located will have an enormous impact on your decision. If your home happens to be one of the most valuable on the block, remodeling probably won't make much financial sense. You could easily price your home above the neighborhood value and that means you'll be stuck.

  • Being able to recoup costs. While remodeling certainly increases the value of a home, it doesn't mean you'll get back everything you put into it. For instance, a complete kitchen remodel averages a whopping $54,909 and has an ROI of 74.2 percent, but that means you won't recoup $14,177, which is a lot of money. If you choose to buy new and move, you won't suffer that big a loss.

  • Your lifestyle changes. Should you be in a position where you just need more space, it probably will be a better idea to sell and buy. Though there are additional costs, these are very little compared to the cost of refinancing and remodeling. What's more, you won't have to completely uproot your home life.