The final decision to Refinance your existing Mortgage (or not), should be based on one simple thing. It must make good financial sense …That decision is often times determined by the length of time you, as a Homeowner, “guesstimates” you’ll own your loan (i.e., stay in your present home). A good rule-of-thumb is that the monthly payment savings received through the Refinancing (at minimum), should “pay back” your Closing Costs for your Refinance. Similar (and additional) considerations need to be made by those Homeowners hoping to upgrade or “step-up” to a bigger and better home and becoming Home BUYERS again. For those in this situation, it’s important to remember:
ALL transactions are not created equal. In most transactions, Home Buyers pay a “fixed” amount of Closing Costs. “Variables” that affect that amount could be (but not limited to):
- Paying points for a lower Interest Rate
- Mortgage Insurance paid upfront or borrowed
- Real Estate Transfer Taxes (in some cities, the Buyers pay)
- Other incidentals
Sometimes, these costs can be paid for by the Sellers, if negotiated into the Sales Contract. Otherwise, Home Buyers can easily pay up to $5,000 for costs associated with buying. In simple math this equates to: A Homeowner’s 5-year stay in their purchased home costs $1,000 a year. ($5,000 of totals costs, divided by the number of years in the home (5), equals $1,000 of costs per year.)
This fact also needs to be considered: During the time you’ve lived in your home you’ve paid down your Mortgage balance … year by year, payment by payment. Maybe you’ve even paid some extra to the Principal too.
On the Sales side of their transaction, Sellers must remember: Their home’s Appreciation or Depreciation in value must also be considered. In a good housing market, the home will have appreciated in value during that duration of time. That Appreciation helps to cover the costs they as Sellers face when they move on.
As a Seller, it’s a good rule-of-thumb to assume that costs will equal 8% to 10% of the Sales Price of your home. That varies of course, depending on the state, city, county, and the percentage of Real Estate Commission being paid.
While your decision to move can be ruled by emotional reasons or the need for a lifestyle change, the decision should definitely include financial considerations, as well. No matter your reasons, if you’re ready to move, it’s important to “do the math” regarding a move and sale. Obtaining a Realtor’s opinion of what it will take to sell your home is wise.
Down Payment funds are critical to any purchase, but especially for those Selling one home and buying another. BEFORE you agree to list your home and sell it, get Pre-Approved by a Mortgage Lender to discover your options or limitations for purchasing your next home.
Most U.S. Homeowners consider a move within the third and fifth year after their first purchase. National averages have shown that most 30-year Fixed Rate Mortgages last an average of 7 years (approximately). When Sellers retain control of the timing of their moves from one home to another, they are more likely to come out ahead.
Is it the Right Time for You to Sell Your Present Home and Buy the Next? Possessing the facts and information needed to make sound financial decisions greatly reduces the stress that accompanies the Buying and Selling of a home.