Owning a home comes with a set of tough decisions to make. The financial decision is one of them. Many people will ask whether I should refinance my existing mortgage or buy a new home? This dilemma often arises when there is a need to ease up on some expenses. One option would be to ditch your existing mortgage and apply for a fresh one with more favorable terms. Another option would be to sell your home and buy a new one using a new loan or cash. Whatever you choose depends on several factors, including some lifestyle and financial aspects. Let’s discuss some of the elements you need to consider when deciding whether to refinance or buy a home.
What Gives You Better Savings in the Long Run?
Should I refinance or should I buy a home? Refinancing is an excellent way of reducing your monthly mortgage payments. Usually, you enter into a new loan agreement with your bank when refinancing. For example, you may decide to extend your repayment period from 20 years to 25 years. This implies a reduction in your monthly payment. As such, you will accumulate significant savings in the long run. However, this scenario can increase loan interest due to the rise in the repayment period. A mortgage expert or a loan officer can help you weigh the options and make an informed decision. They will help you compare the potential savings and costs involved in buying and refinancing a home.
Do You Qualify for Refinancing?
Refinancing is not always possible, even if you are faithfully repaying your monthly mortgage payments. In order to qualify for refinancing, you must have a good credit score. Every financial lender must ensure that the money they lend is going to come back. Some of the factors they may put into consideration include your outstanding debt, credit history, income, and your home’s equity. If your credit standing is excellent, then you are eligible for refinancing. Besides that, you should assess yourself and determine if you can afford to continue paying the monthly mortgages. If you face challenging economic times or an uncertain employment future, it is better to consider the buying option. When you purchase a new residential property, you will be spared the monthly mortgage expenses if you lose your job.
How Many Years Will You Be Staying in the Home?
In many cases, refinancing will start to accrue benefits after several years of repayment. You will begin to make savings after your refinance breaks even. If you decide to sell the home before this time, no savings will be generated from the refinance. Thus, it is best to seek alternative financing options if you intend to sell your home in a few years. You may consult your mortgage expert or loan officer to help you determine when your loan will break even.
How is the Market Situation?
Check the current market situation before you make your final decision. Will the market favor you as a seller or a buyer? If your area’s property value and prices are steadily increasing, you would better sell your home and buy another one rather than refinancing it. Selling your home in such favorable conditions means that you will make better profits from the venture. Property valuation also increases with rising prices. That could affect refinancing options since interest rates on mortgages would increase as well. Therefore, the best option in such a market would be to sell your property and buy a new one in another area.
What Are Your Lifestyle Needs?
In addition to financial factors, your ultimate decision to refinance your home or buy a new one will depend on your personal needs. Perhaps you want to remain in your current home, but the space is too small for your growing family. Or maybe you want to do a home makeover that would cost you an arm and a leg. Refinancing can help you achieve such goals. You may cash out the equity in your home and use it to fund your home improvements. By doing so, the value of your property will increase, which is an added advantage if you decide to sell the home in the future.
What is Your Outstanding Loan Amount against Your Property’s Value?
Your bank will seek to know the value of your property before they can refinance your mortgage. If the value falls significantly low compared to the outstanding loan, you might not qualify for refinancing. It would help if you considered enhancing your property’s value regularly by renovating and improving the space.
Have you been asking yourself this question regularly; should I refinance, or should I buy a home? Contact MEGG Homes today and let us help you make this all-important decision. We offer home buying and selling solutions to meet the needs of all our clients. We have a reliable team to offer you professional advice.