Are you planning to refinance or sell your property? If you are, then pause for a while and know the difference between refinancing and selling. Although the latter sounds like an ideal move, it is important to know both options so you know where your money is going. So is it really time to refinance your property or just sell it for a more manageable one? Before making decisions, let this article enlighten you first!
Refinancing Your Home
Refinancing, by definition, simply refers to a renewing existing loan with a paid off debt of an old loan. This new loan has better features or terms that improve your finances. You can avail refinancing if you have an existing loan that you want to improve or you can find a lender that allows better loan terms and apply for a new loan. Refinancing can also help new loans pay off the existing debt all at once and make payments on the new loan until you are able to pay it off or refinance it.
Advantages of Refinancing
Although refinancing a property can be time-consuming and costly and your new loan might have missing features that could help you it could be a good option to take. This is because refinancing has it’s own benefits and here’s why:
- It allows you to save money – one of the most common reasons of refinancing is because they can save money on the interest costs. You must refinance into a loan that has an interest rate much lower than your existing. If you plan on long-term loans, a lower interest rate can save you a lot of money in the long run.
- It has lower payments – refinancing can result in lowered monthly payments. This also means more cash flow and money available for your monthly expenses. Refinancing basically works like a restart on your money and extend the time you need to pay off a loan. This gives you more time to repay it and reduced monthly payments if your balance on your original loan is left with a smaller amount.
- It shortens the loan terms – if you plan on refinancing on a short-term loan then you don’t need to extend your repayment. Example, if your home is on a 30 year home loan which can be refinanced to 15 years, it should come with a much lower interest rate.
- It can change your loan type – for those who have variable rate loan, refinancing can give you a fixed rate. It offers protection if the rates are low but not expected to rise.
- It consolidates debts or monthly payments – multiple loans can be a pain when monthly dues come knocking. If you refinance, you can consolidate them into one single loan which is a lot easier to keep track and pay.
- It can help you pay off a due loan – there are times when your loan can balloon up due to certain reasons. They can be paid on a specific time but it could also mean you might not have enough money for a lump sum. If this is the case, refinancing is a good option to take as you are given time to pay off a debt.
Disadvantages of Refinancing
While refinancing seems like an ideal move, it’s not always the case. Upfront expenses might go way too high to catch up and instead of making use of the benefits on your current loan, it could outweigh your savings associated with it. It could also do the following:
- It could be expensive – if you have loans for home, your closing costs can soar to thousands of dollars. In order to avoid this situation, make sure you come out ahead before paying these costs. You may also pay processing and origination fees with other types of loans.
- Interest rates are higher – sure, refinancing sounds good but it could also backfire. If you keep extending your loan payments, there’s a big possibility of paying more interest on your debts.
- Not all important features are included in refinancing – your existing loans may have useful features but if you choose to refinance, you might just lose them with your new loan plan. It is important to keep fixed-rate loans in case interest rates increase, you can still avail of your old one so refinancing may not be for you.
Selling Your Home
One of the easiest ways to get money is by selling your house. However, is it really worth selling just so you can have quick cash? Besides your mortgage payment, there are plenty of reasons why a move can be beneficial for you professionally and personally. If this is the case then selling your home is a great deal. However, if you plan to move in order to save up on monthly payments then you might be making a mistake. Keep in mind that if you move, you need to pay moving expenses, closing costs and even redecoration. So is moving worth it?
You Can Sell Your Home If You’re Ready
Choosing to sell or not will depend on you as the homeowner. If you are determined to sell your home then you should know if you have the following:
- You have paid off your equity – having negative equity is a bad way to start when you are trying to sell your house. This is called short sale which only means you owe more than the house’s actual value. If you find yourself in this situation, don’t sell your home but if you have to, it should be for good reasons like avoiding foreclosure or bankruptcy. If you really want to sell, make sure also that you have paid off your equity first.
- If you don’t have any debts in the bank – take a good look at your finances and see if you have paid off all of your non-mortgage debts. If yes and you still have six months worth of money in your bank account then it’s a good sign to sell your home to purchase a newer one.
- If you wish to buy a home that fits your lifestyle better – sure a big house is nice but if you live alone, do you really need one? Smaller houses are inexpensive and easier to take care of compared to big ones. Plus if your budget does not allow you to do so, do you really have to get a bigger house? Downsizing is in and small house are trending these days. If you can find a house that suits your needs then you can save money from paying monthly mortgages too.
- If you are emotionally ready to sell your home – selling a home where you have settled your roots in can be a very emotional decision. You cannot help but think of the memories you made in that house and letting it go can be bittersweet. So if one day you wake up and you are at peace with your decision then it’s time to sell it. Keep in mind that you have to be completely ready when you do this so it will also be easier for you to sell and move onwards.
- If you understand the housing market – it’s a bit confusing if you look into the housing market and if you are still confused about it, don’t sell your home. Make sure you study how the housing market goes first, see what is trending in the market and make sure that you know each term of sale before selling your property otherwise you might end up selling it prematurely. I mean, any market is a good market for a home seller if he or she knows how the market works. Make sure to consult a professional real estate agent on this too. They’re the ones who can guide you on this.
To Refinance or Sell?
Both options are beneficial but your choice will also depend on what you need. Do you want to keep your house and just renew a loan? Refinance. Do you want to get a new home that suits your needs? Sell it. Either way, both choices are good, so always weigh in on your needs. I hope this article helped you in any way, cheers!
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