Why Refinancing May Still Make Sense Even If You Plan To Sell In A Few Years

Refinancing could still make sense even if you plan to sell the home down the road. Here are several reasons to consider refinancing anyway.

Financial Circumstances Can Change

Let’s say you plan to sell your house in five to seven years. No matter how well you plan for the future financially, things happen. Job loss, illness, death, life inevitably gets in the way of your financial plans, focus on the here and now as long as you can justify pulling the trigger. The longer the horizon of selling the home, the more chances life has of getting in the way.

Consider Interest Rates

Thirty year mortgage rates have etched up and are hovering just over four percent. The new outlook for mortgage rates points to continual increases bringing the cost of debt up. Picture this, if you don’t sell the property nor if there is a market correction, and you do not refinance for whatever reason, is your current loan rate and payment, something that you can afford to carry for the long haul? If you could save money or better your financial position it is probably worth investigating. Rates are even better on Jumbo mortgage loans, as more and more investors are pouring into this particular market niche. If you have big mortgage on your home, take a look a refinancing.

Arm or Home Equity Line of Credit Recasting

With the increased likelihood of the Federal Reserve tightening interest rates in fall 2015, adjustable rate loans and home equity lines of credit recasting will affect millions of homeowners. Most adjustable mortgage loans were tied to the London Interbank Offered rate which closely trails the Fed Funds Rate, the rate at which the Federal Reserve uses to control the US economy. Put another way, if the Federal Reserve hikes interest rates, LIBOR will soon follow suit, and any homeowners within their adjustment period will experience a higher payment or a future higher payment when their adjustable-rate loans recast.

The other more common form of adjustable-rate mortgage is a home equity line of credit. It works in a similar fashion with fixed period followed by a recast. The payments are interest-only for the first ten years. After ten years, the loan recasts, and the remaining twenty years of the thirty year term, the loan payment is principal and interest, so at the end of 30 years, the loan is paid off in full. The payment shock will happen after the first 10 years is up.

If you have a first mortgage on your home with a home equity line of credit, it very well might make sense even if you plan to sell the home down the road, to roll the first mortgage and second mortgage into one, saving money continuing to make a manageable mortgage payment in relationship to the time in which you plan to sell.

Mortgage Tip: if you have not taken any draws on the home equity line of credit in the last 12 months, you are automatically more eligible for more mortgage loan programs as the loan may be considered to be what’s called rate and term which allows you to refinance up to 80% of the value of the home.

Throwing Good Money after Bad-PMI

The number one dreaded mortgage cost every consumer despises is private mortgage insurance. PMI is an extra portion of the mortgage payment that not only drives the housing expense higher, but doesn’t do anything beneficial for the consumer. PMI benefits the bank to protect against payment default. If you can rid yourself of private mortgage insurance, because you have at least 20% equity in your home or more, or might be able to qualify for a special mortgage loan program such as lender paid mortgage insurance, even if this home is not the end-all be end-all home, you’ll save money. PMI can average up to several hundred dollars per month in most instances. If you have the 20% equity needed to refinance a new non PMI loan, have the credit worthiness, but simply choose to not refinance, because the paperwork is too daunting, you’re throwing money away.

Recapture Time Frame

No one should refinance unless the time frame it takes to recapture the monies is sooner than the time in which they plan to sell the home. The most common form of determining how quickly you can recoup your monies when refinancing is performing a cash on cash calculation. For example if your closing costs are $2800, and you’re saving a proposed $300 per month on a refinance, that’s a nine month recapture. Fees divided by benefit equals recapture.

If you can benefit by refinancing by payment reduction, by cashing in on equity, or by interest savings, or any combination of these benefits, remortgaging your home very well could pencil. Consider the following scenario… if you can recapture refi in under two years, and you don’t plan to sell for five years, your three years ahead, and the reward are yours indefinitely, no matter what the future holds. Ultimately, weighing out the pros and cons of a possible refinance in conjunction with selling the home is a decision for you to make. A good mortgage professional should be able to suggest mortgage options in alignment with your financial goals and objectives allowing you to make the most prudent decision.

Considering refinancing? Need some guidance on your options? Begin with a free quote from Scott today!

 

 

 

 

 

 

RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

When buying a home, it’s natural to want the lowest mortgage rate possible. But sometimes, chasing a slightly better rate from another lender—especially after your offer has already been accepted—can backfire in a big way. Let’s walk through a real-world scenario. You’ve got an offer accepted on a house. You’re working with a lender who has you approved, documents in underwriting, and a 21-day close of escrow in place. Everything is moving forward. Then you hear from another lender offering a rate that’s 0.25% lower, with slightly better closing costs. It’s tempting. But before you make a jump, here’s what you need to consider. Switching Lenders Comes with Time Costs When you pivot to a new lender mid-contract, they’ll need to: Re-underwrite your entire loan, Order a new appraisal, Disclose and sign new loan documents, Submit the file for final loan approval, Schedule and fund closing—all over again. This doesn’t happen overnight. Even in ideal circumstances, the new lender is likely going to need at least 25–30 days to close. If you’re in a fast-moving or competitive market, this is a real problem. Most sellers won’t grant a contract extension just because you’re switching lenders. So, what happens next? A Contract Extension Can Jeopardize Your Deal Asking for a contract extension means the seller must agree to delay closing. But that delay introduces risk—especially if the seller has backup offers or simply wants certainty. They may not grant the extension. Or worse, they could cancel the deal outright and take another buyer’s offer. Even if the seller agrees to extend, your earnest money and negotiation power could take a hit. And for what? A slightly lower rate that might save you $50 to $75 a month? Mortgage Rates Aren’t as Far Apart as You Think Here’s the truth: all mortgage lenders get their money from the same place—the bond market. The pricing differences between lenders usually range from 0.125% to 0.25% in rate on any given day. If one lender seems to be offering dramatically better pricing, the first thing you should ask is: How? Head over to FreddieMac.com and check the average 30-year fixed rate posted weekly. This is one of the most reliable benchmarks for where rates truly stand in the market. If a lender is quoting you a rate that’s well below that average, ask for the details: Are they charging extra points? Is this a teaser rate with a prepayment penalty? Is it based on a different loan product or risky structure? Often, what sounds “too good to be true”… is. Consider the Bigger Picture Think long-term. If you’re financing $600,000, a 0.25% lower rate may reduce your payment by roughly $75/month. But what if you lose the house and have to start over? That monthly savings doesn’t mean much if you’re outbid on your dream home or lose your deposit. Also, remember: you’re not going to keep this rate forever. Today’s homebuyers typically refinance when rates drop by about 0.75% or more. So if rates fall within the next year or two, you’ll likely be refinancing anyway. Instead of paying extra points now or risking the entire deal for a minor monthly savings, it may be better to accept a slightly higher rate—knowing you’ll refinance when the time is right. The Real Risk Isn’t the Rate—It’s the Delay When shopping for a home loan, don’t just ask, “What’s your rate?” Ask: Can you close on time? Is this rate sustainable or based on hidden costs? Will switching lenders delay or jeopardize my contract? A home purchase contract is a binding agreement between you and the seller to perform within a set timeframe. If you can’t meet those dates because you're chasing a slightly better rate elsewhere, you may want to reconsider if now is the right time to buy. Final Thoughts Yes, interest rates matter. But execution matters more. Before making a switch mid-transaction, talk to your lender. Have an honest conversation about pricing, timelines, and strategy. You might find that staying the course, securing the house, and planning to refinance later offers a better path to financial security. Want to Know Your Options? Let’s compare rates and strategies the smart way—without risking your dream home. 👉 Click here to get a custom rate quote today.

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