Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: Should I Refinance or Move-up?

Should I Refinance or Move-up?

Should you refinance your home, or should you sell the current house, take the lower rate, and buy more house for your growing family, but still have the same payments as your current loan and smaller house?

Does this make sense?

When rates start going down, people immediately think about refinancing their home to reduce their payments.  Of course, having lower payments is always a big plus.  Who doesn't like to save money?

On the other hand, are you comfortable with your current payment?  Are you able to pay all your other bills, save money each month, and still have some to play?  Is your family still growing, or are the kids just getting older and need more room to run around?

Refinancing might not be the answer.

The answer might be, keep your current mortgage payment (or close to it) and buy a newer or larger home, whichever suits you.

For example, your current home is valued at $200,000 and your current mortgage payment, including taxes (2.3%) and home owners insurance (0.80%) (keep in mind that I'm in Texas so your taxes might not be as high as this estimate here), is $1813 with a 6.75% interest rate.  If you refinance, you might be able to get down to $1620 with a 5.25% rate and save $193 a month (though it usually costs about $4000 in fees just to close a new loan so calculate how many months it will take for you to recoup your fees along with your monthly savings).  You could invest that extra...

Or, you could sell your $200k house, and buy a different house for $225k and keep your $1800 payment, plus invest the profit from selling the previous house.

Just in going from a $200k price range up to a $225k price range, you're opening your options up so much to be able to get into a larger house today with the lower rates, instead of waiting a few years when rates could be back at your 6.75% rate you currently have or even higher.  The market fluctuates constantly, and it's hard to predict what might happen in 3-5 years, but if you know you'll probably want something larger in 3-5 years, you might want to rethink that time frame as rates hedge more than 1.5% lower than what you currently have.

Food for thought...

Comment balloon 14 commentsDonna Harris • September 11 2008 11:05AM

Comments

Interesting post -- am mulling over your idea.

Posted by Li Read, Caring expertise...knowledge for you! (Sea to Sky Premier Properties (Salt Spring)) about 10 years ago

Great post Donna... my feeling is that most people don't think of these type of options; with ownership you have options and with a good Realtor working for you they can advise what option would be the best to take. (Now does this make sense?!?!?!) 

Posted by Teresa Harris, Denver . Lake Norman . Charlotte (Lake Real Estate, LLC) about 10 years ago

Great post.  I have many calls about people that want to refinance to lower their payment.  Why not...they see all the commercials...5.25% fixed, etc...and they are at the 6.75.

But when I sit down with them and show them the total cost of the refinance that is rolled into the loan their payments are close to where they are at now.  As well most LO always preach a 30 Yr Fixed.  What if the client has been in the mortgage for 7 years.  You just added that back...so the loan no longer becomes a great loan, etc, etc...

But approaching it the way you have may have them think more about there end goal.  It is important that the client knows they have a group of professionals their to help them...

Keep up the great posts.

Posted by Delete my account, Delete My Account (no one) about 10 years ago

Li, any thoughts after mulling it over?

Teresa, The problem is that when people have refinancing on the brain, they go to a mortgage person first.  It takes a mortgage person explaning these things to home owners to help make this work.

Jason, I love how people think it's "free" to refinance as they hear the word thrown around so much.  ANd if they've already been in the house 7 years, if the break-even point is 4 more years, that really doesn't make sense for most home owners...

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) about 10 years ago

I agree 100%...but there are to many LO's that jumps right on it and sales them the mortgage and the &*^^it came with.  It is sad that it still happens.  As a whole we all need to be client advocates and help people think about whay they are going to get into.

Hope you stay safe this weekend.  My prayers are going out to the whole state to stay safe...

Posted by Delete my account, Delete My Account (no one) about 10 years ago

Thanks, Donna. Great, objective posts like this are what the customer appreciates. Keep it up!

 

Paul

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) about 10 years ago

I always like the move up option because when the market turns around you'll be sitting pretty with a lot of equity.

Posted by David Slavin, CDPE, ABR, SRES Keller Williams Premier (Keller Williams Premier) about 10 years ago

Jason, THank you.

Paul, Objective?  Me?  Ahhh, shucks... Thanks!

David, Exactly!

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) about 10 years ago

It sounds good but I think your numbers are off.  To do a move up it really takes a 40k to 50k jump in price to make it worthwhile but that is just my humble opinion.

Posted by Gene Allen, Realty Consultant for Cary Real Estate (Fathom Realty) about 10 years ago

Actually, No my numbers aren't off as you can easily make a very nice jump with $25k.  As you can see in my blog, I specifically said these numbers were for the Dallas market, and most any market in Texas including the larger cities because we're all running close to the same average prices. In my market, jumping $25k can jump you over 500 sqft and something newer in many communities.  A $150k home is WAAAAYY different than a $175k home.  A $250k home is completely different than a $275k home. $25k makes a HUGE difference!

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) about 10 years ago

I would sell. Not a big fan of tenants. As far as "saving money" even paying a point makes it less worth it. Then again, I don't know your market to say what may or may not happen with your most important investment.

I would rent my house and refi if I was in the area to police it. What would you do? Hire a property managemnt company?

Posted by Greg Nino, Houston, Texas (RE/MAX Compass, formerly RE/MAX WHP) about 10 years ago

Good post Donna.  It's good to get clients thinking about these things.  Brett and I actually had a similar conversation just a few nights ago concerning our primary residence. 

Taking into account our "5 year" financial plan, the current dip in the stock market (we're buying low), the possibility of relocating in 12-15 months, and running the numbers on multiple scenarios we decided a re-fi would actually hurt (our goals, not our wallets) more than help in our case.

Of course knowing where you are, as well as where you want to go is key.  So many consumers just don't understand that part.

Posted by Tracie Mason, Holton, Coach & Virtual Assistant (Agent Assistant Network) about 10 years ago

Greg, I wouldn't rent this house out... I would only hold a rental in a lower price range.  If I did, I would probably hire a property management company in order to take some liability away from me as a Realtor.

Tracie, It's good to know that some people actually do look at numbers in a good way and don't just jump on emotion.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) about 10 years ago

Donna - good point....

Posted by Greg Nino, Houston, Texas (RE/MAX Compass, formerly RE/MAX WHP) about 10 years ago

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