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December 10, 2019
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Real Estate & Business

Scott Sheldon
Should you cash out to refinance What makes the most sense?
November 15, 2019

Homeowners who have outgrown their houses may be considering the possibility of buying another property or just staying put and remodeling the one they already have. Here are some things to consider if you’re trying to determine what makes the most financial sense…

When you buy your first home you might not be thinking about the possibility of upcoming children or a life event changing which might cause you to re-evaluate whether that home that you’re living in makes sense to stay in or whether it makes sense to sell that property and buy a new primary home.

Buying another home can put you into a different neighborhood and put you into a bigger, better nicer house potentially for your growing family or for the more space that you need or be closer to work, etc.

Interest rates are extremely low sub 4 percent on fixed-rate money which can make the idea of buying a new home very attractive especially if you can get a good price on the house. For every $100,000 of spending power expect $600 to $650 a month of payment when buying a home. The downside to this, however, is you’re going to pay property taxes based on the new purchase price of the property.

Now let’s look at the possibility of refinancing…

When you refinance you essentially are trading in one mortgage for a new mortgage for new terms based on whatever your goal is. Most home renovation projects that have the biggest bang for your buck in terms of sweat equity and market appreciation are going to be pricey.

It’s realistic that you’re going to spend at least $50,000 to $100,000 to spruce up your property. Your real estate taxes will change if you do an addition on your home, but they will change very incrementally because the lion’s share your taxes will still be based on what you originally paid for the house.

Keep in mind if you buy a new property and you’re talking about a disparity of $100,000 it’s about $650 a month of payment when you refinance because the real estate taxes remain the same. When you refinance the refinance does not cause the house to get reassessed it’s realistic that you could get $100,000 for about $350-$375 per month of payment.

You are reading that right. $100,000 of spending power or borrowing ability your payments are less when you refinance than they are when you buy a new house. That’s not to say that refinancing doesn’t carry its share of problems per se because you’re still in the same house in the same neighborhood etc. so you really need to weigh out all the options. Is it just the house that is the issue and the neighborhood is fine or do we need to change the neighborhood and change the size of the house? If that is the case you should give more support to buying another property, but if you like the neighborhood and the neighborhood that you’re presently in works, but you just need a bigger den it might make more prudent to cash-out refinance your house considering many markets also have a scarcity of available homes in the market.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.