Mortgage refinancing has many purposes, and there are many ways to go about a refinance. We will go into some of those reasons later on. People often wonder though, are you about to sell if you’ve recently refinanced?
Technically, yes, in most instances you can refinance your home shortly before selling. However, as you’ll learn in this article, there are several reasons this strategy doesn’t add up.
What Is a Mortgage Refinance?
A mortgage refinancing is when you take out a new mortgage in order to pay off the mortgage on your home. The idea behind this is that if you have equity in your house, refinancing allows you to unlock that equity for whatever reason necessary.
For example, people usually refinance their homes because they plan to use the money for repairs or home upgrades. Perhaps they want to pay down some debt, change their loan type, lower their interest rate, or maybe they want lower monthly mortgage payments. Whatever the case may be, refinancing allows them access to become more flexible to suit their needs.
Let’s look at each of these reasons for refinancing a little more closely:
Need the Money for Repairs or Home Improvement Projects
Sometimes, people want to refinance so they can get cash to make home upgrades or do home improvement projects. So, they do a cash-out refinance. This is how it works: Your mortgage principal is $100,000. You have some vital repairs and upgrades you want to do in your home that will cost you $20,000. You go to your mortgage lender and ask for a cash-out refinance. They approve your new mortgage of $120,000 and send you the cash to fix your home shortly after.
Pay Down Debt
This will work the same as a cash-out refinance does. You take on more to your principal mortgage to get cash from the bank now to pay off your debts. The risk with this is that you add more to your existing loan and your home loan monthly payments might get a little higher, which might not work for you if you already have major debt. You should always consult a professional lender to get advice on this. Don’t just use a mortgage refinance calculator or try to find the new rate for your mortgage online. Talk to a professional.
Change Loan Term or Type
Some people don’t like the type of loan they have, and they refinance to get a more favorable loan type. For example, many people, especially first-time home buyers, take out an FHA loan (Federal Housing Administration). These loans usually require a small down payment, but then require the homeowner to make PMI (private mortgage insurance) payments every month. Some people refinance to a conventional loan once their credit improves to get rid of PMI and to establish more equity in their homes.
Lower Mortgage Interest Rate
Mortgage rates vary daily, and the housing market can be volatile at times. If you buy a home at, let’s say, a 3.5% interest rate, but now rates are at 3%, you can talk to your lender about refinancing to get the lower rate. The lower rate allows you to pay less on a monthly payment, and to ultimately pay less in interest overall throughout the life of the loan.
Lower the Monthly Payment for Your Mortgage
Sometimes, people have shorter loan lives, or they have a variable loan type that causes their monthly payments to be higher and more sporadic than they would like. Sometimes, a mortgage refinance allows people to lengthen their loan life or go from a variable interest rate to a steady fixed-rate mortgage interest rate. Changing the loan term in either of these ways often results in a lower monthly mortgage payment because the loan gets spread over more time, or the interest rate levels out.
Why You Might Not Refinance Shortly Before Selling Your Home
Many people think that refinancing to pay down debt or reduce mortgage payments is the way to go before selling your home. However, before you decide to refinance shortly before trying to sell your home, it’s important to consider the following:
Will You Make Back the Money?
When you refinance your mortgage, you have to pay closing costs, just like you did at closing when you bought your home. The closing costs for a refinance tend to be much lower than when you buy a home, but they can still be several thousand dollars. If you refinance your mortgage and pay the closing costs, how long will you have to live in your home to make up the costs? Or, will you be able to sell your home for more than what you owe to the bank, and still make a profit?
If you want to know if you’ll make the money back after selling your home, you first need to find your homes’ current market value. To do that, use Clark County Market Values’ online home valuation tool. Within minutes, after answering a few short questions, the home valuation tool will accurately calculate how much your home could fetch in today’s competitive market.
Can You Refinance and Sell Shortly After With Your Loan Type?
Some loan types do not allow you to sell your home within a certain timeframe after a refinance. For example, FHA loans have strict rules about refinancing and selling shortly after. Ask your mortgage lender about the exact parameters of your loan type to find out if this is a restriction for you.
When Should You Refinance?
There are many reasons to refinance, as well as many reasons not to refinance. Refinancing has a lot to do with timing, and it’s a highly individualistic decision. Because of this, you should talk to your mortgage lender about refinancing, and let them advise you on your options.
Is a Mortgage Refinance Right for You?
People usually have good intentions when they decide to refinance. Often, they want to refinance to get more equity to put themselves in a better position to support their families, lower their interest rate, save money, get a shorter loan term, lower their monthly payments, improve their credit score, or want to make repairs to preserve their home or make it better for the next buyers. It’s not always good to refinance, though. You should always consult your mortgage lender before making such a big decision.
There are many options for refinancing, and there are many reasons why it may or may not work for you. If you are thinking of selling or considering a mortgage refinance before selling, find your home’s value. It’s a great place to start when making such a big decision. Clark County Market Values’ online home valuation tool is easy to use and will give you an accurate assessment of your homes’ current market value in just a few minutes. After you know your home’s worth, contact your lender for more information. The more you know about your current situation and your local market, the better you’ll be at making the right decision for you.