To Sell or To Refinance: How Do You Decide?

As interest rates begin to slowly tick upwards, homeowners should take note. So far these small increases have not had a huge impact. But, since more increases are expected over the next year – and even more in the coming 3 years--refinancing or selling and then buying a new home may become costlier as time goes by.

Essentially, waiting to secure a new mortgage or to refinance your current loan could cost you. If the anticipated hikes take place this year, it could mean a jump to a Fed funds target rate of 1.25 percent by 2018.

What does this mean to you as a homeowner? It means the time to trade up your home or refinance is now if you want the lowest interest rate possible. The question for you may be, “Do I sell and buy a new home, or do I stay where I am and refinance?”

Here are a few questions that may help you decide:

1. Will you actually need to sell or move in the near future? If you are going to need to move in the next few years because of work or having a baby for example, refinancing is not a wise decision. Sell now and move now, while prices and interest rates are still relatively low.
   
   
2. Do you have enough equity in your home to make selling or refinancing worth it? Depending on whether you are simply trying to get a lower interest rate, or you are looking to get some cash out of the refi, the amount of equity you have in the home may be a factor in whether this is the right move. If you are looking to sell, the amount of equity you have will affect your profit from the sale.
   
   
3. Is your credit score going to increase your interest rate? Sometimes, if your credit score is less than stellar, you may not qualify for a refi or mortgage on a new home, or you may qualify, but at a higher rate. This could mean that a move is not financially beneficial. Talk to a mortgage lender and get prequalified to determine which choice is the wisest.

As time goes by, you should note that along with paying greater interest (which may make refinancing or buying not feasible) it also may mean it is harder to qualify for a new mortgage. This is explained well in a blog post from the Urban Institute:

“As mortgage bankers try to compensate for the huge decline in mortgage originations, they will be more likely to lend to creditworthy borrowers who have less-than-perfect credit, borrowers who currently find it difficult to obtain a mortgage,” the Urban Institute stated.

Decided to sell? Here’s what you should you do next

If you are serious about selling and trading-up soon, get to work:

• Get pre-qualified for a mortgage and know exactly what you can afford.
  
  
• Find a qualified real estate agent to determine what your home is worth and to market it so it sells quickly.
  
  
• Have your list of “must-haves” refined and ready so you can quickly evaluate any potential new home.
  
  
• Don’t put off going to see homes until your current one is sold. If your real estate agent finds a viable option go see it right way. Buyer competition is fierce right now.
  
  
• Be ready to make an offer if you like what you see. Your offer can be made to be contingent on the sale of your current home. Don’t wait and think about it for a few days or you could lose that home to a more prepared buyer.
  
  
• Lock in your rate. Speak to your mortgage lender about locking in the rate they quote for you.

Refinancing can save money, but only if the timing is right for your situation. Ask plenty of questions and take advice seriously. Speak to your real estate agent too, because he or she will be able to give you helpful insight into the value of your current home and if selling is right for your needs.