Refinancing Your Mortgage vs. Selling Your Home in 2024 – Beragampengetahuan

As we have seen, even if rates are lower on paper, that may not mean they’ll actually save you money in the long run. Let’s take a look at some factors that can increase mortgage rates and reduce the amount you save.

Loan-to-value ratio

A loan-to-value ratio (LTV ratio) assesses a borrower’s risk level by evaluating the amount of the mortgage loan versus the current market value of the mortgaged property.

For example, if you need a $400,000 mortgage on a property valued at $500,000, you have an LTV ratio of 80%.

Remember those slightly higher refinancing mortgage rates? Those typically occur because you’re either cashing out equity as part of the refinance or wrapping closing costs into the new mortgage. Doing so increases the LTV ratio. If it goes over 80%, you’ll only qualify for higher interest rates, and the lender may require you to pay for mortgage insurance.

If you’ve paid your existing mortgage for a number of years — and your home’s value has risen during that time — then your LTV ratio has improved, and you’re likely to get a good rate.

However, if your home’s value decreased after taking out your existing loan — and you’re now upside-down on your mortgage — then your LTV worsened over time, even if you’ve been consistent in your mortgage payments. In this situation, your LTV ratio will only qualify you for the most expensive interest rates, if you qualify at all.

Closing costs, fees, and other unexpected expenses

Getting a new mortgage is going to cost you. Aside from the potential for mortgage insurance, you’re going to have closing costs and lender fees which can be between 2% to 6% of your total loan. Freddie Mac reports that the average closing costs for a refinance are $5,000.

There are also other expenses specific to you that must be accounted for when you’re calculating how much that lower interest rate is actually saving you.

For example, homeowners who received a First-Time Homebuyer Credit may need to repay that credit when closing out that first mortgage — whether refinancing or buying new.

So, keep in mind that an initial rate comparison may seem to indicate that you’ll save money with a better rate that lowers your monthly mortgage. However, those minimal monthly savings over time may not ultimately outweigh the amount you’ll pay in fees to get the new loan.

Time to decide: Refinance or sell?

Every homeowner’s financial situation and existing mortgage structure are complex and unique, so there is no one-size-fits-all answer. To decide, it’s best to analyze your financial need and seek expert advice for your specific situation.

Decide whether your financial need is short-term or long-term

“As real estate agents, people come to us with unique problems, and we help them understand the market” so they can make the right decision, Lewis said. In any market, some people need to move because they’re relocating for work, dealing with a divorce, or need a bigger home for a growing family. In that case, it makes sense to sell, “especially if you have equity,” he says.

Lewis recommends meeting with a mortgage professional who can discuss financial vehicles that may help you reduce the mortgage costs on a new home. For example, the lender may have a rate buy-down program or offer a discounted rate for the first year or two. An adjustable-rate mortgage may be another option.

Rick Ruiz, a top agent in Las Vegas, Nevada, who sells properties more than 47% quicker than the average agent in that area, suggests homeowners looking to tap their equity decide if their need is short-term or long-term.

If your problem is short-term and very specific — say, you need help paying several large medical bills, but you’ve got typical monthly expenses covered — Ruiz suggests a third option that is especially helpful in a high-interest-rate environment: a home equity line of credit (HELOC). Although this loan type still borrows against your equity, origination fees will be much lower than for a refinance. Plus, although you may be approved for a large amount, you only take out and pay interest on what you end up needing — so you may not end up increasing your debt burden as much this way.

If your problem is longer term (and you don’t want or need to move for other reasons), Ruiz recommends a refinance over selling. “I’m a big proponent of holding real estate long-term,” he says. “I’m going to come from a place of what can I do to hold on to this asset if at all possible.”

Consult the experts

You don’t have to make such a complex and big decision alone.

The National Association of Mortgage Brokers (NAMB) offers a search feature to help you find a Lending Integrity Professional who can review your options with you. After working out the numbers with a refinancing expert, your next step is to consult with an experienced real estate agent. An agent will help you compare your potential refinancing savings with your potential profits from selling your home.

An agent is also your best resource for obtaining the comps of homes sold in your area that you’ll need to assess your home’s current market value—rather than letting your lender alone determine its worth.

Proceed with confidence

Deciding to refinance or sell is a personal financial decision. When you understand your options in light of today’s complex market, honestly assess your financial situation, and collaborate with experts, you’ll be equipped to make a smart decision for your home.

Header Image Source: (Ian MacDonald/ Unsplash)