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Sclantz75
New Member

Refinance

I'm planning on selling my home in the next year or so. I would like to refinance now to get a lower interest rate. I'm currently at 6.25%. I want to refinance to lower my payment. But at the same time I need to fix up things around the house. Should I refinance loan as is for lower payment, or borrow more money to fix up house which probably wouldn't lower my payment?

4 Replies
Chella58
New Member

Refinance

Sometimes the refinance company or bank will have a time frame in contract to sell so I would check that but lowering  rate is always a good thing. However several hits and actions on your credit report can look unstable. If I was going g to sell that quickly I would take out a small bank loan do a few fixes then list it. If I was going to refinance I would stay in it a while to create that stability on your credit and satisfy the loan.

Carl
Level 15

Refinance

Here's a few other methods and possibilities to consider, that you may not have even thought of yet.

If you plan to sell within two years, unless you can refi with a "real" no-closing-costs loan, I wouldn't bother. There's two general rules here, and when I say "general" that's exactly what I mean. It *DOES* *NOT* *APPLY* across the board by any stretch of the imagination.

Rule 1: If refinancing will not lower your interest rate by 'at least' two percentage points,then it's probably not worth it. But it depends on the amount your refinancing. The more being refi'd, the lower change in rate that "may" be worthwhile still.

Rule 2: Generally, if it will take you more than 2 years to "realize" your closing costs on the refi with the lower payments, then it's not worth it.

Now if you plan to sell anyway within two years and need to put some money in it to "fix it up" for sale, you may want to talk with a lender about a 2 year "balloon loan".  This may or may not be a secured loan. But if secured by the property, then the interest is tax deductible only if you use the loan to fix, repair or improve the property that secures the loan. A two-year balloon loan is where you make monthly interest payments "only" for two years. If secured by the property then traditionally (though not always) the interest will be lower than if you did a refi. At the end of the term the entire amount borrowed is due and payable in one lump sum. So if you're confident you could sell the house before the end of the loan term and with enough gain on the sale to pay off the balloon loan, this may be a method worth investigating. Also note that with the balloon loan method you can fully expect a representative of the lender to be present at the closing with you and the buyer so as to ensure they actually get a check for the outstanding balance of the loan.

 

NCperson
Level 15

Refinance

normally, it's not worth refinancing if you are only going to be in the home for a short time.

 

However, you may be the exception as your interest rate is 6.25 and 30 year fixed rate mortgages are WAY lower than that these days.

 

You'll have to do the math and determine if the reduced payments justify the closing costs you have to pay.  It may in this situation.   

 

otherwise, don't refinance and get a HELOC.  the closing costs are much cheaper.

NCperson
Level 15

Refinance

@Carl - okay I read your response.... I am not confident balloon loans are viable anymore - an outcome of the financial crisis.   Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 banned then in the 2ndary market is my understanding.... so not very prevalent.   

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