Q: I have a high-interest-rate loan. I would like to sell the house due to downsizing and neighborhood changes. Because interest rates are low now, I can’t decide whether I should refinance and then list to sell, or just go ahead and sell with the high-interest-rate loan. Because of the area, the house may not sell right away and could be on the market for as much as a year.
A: "High" interest and "low" interest are totally relative, my friend. Every time I mention a high-interest loan that’s in the 6 percent range, my dear father reminds me that when he bought our family home in the 1980s, interest rates were in the 15 percent range!
I see two issues here. First, the issue of how long it might take your home to sell. It might be the case that homes in your area stay on the market a year, on average. However, you are definitely in the driver’s seat on a number of items that could move your home quickly — most importantly, pricing. You know from your own shopping experiences that everyone wants a bargain. You have the power to set the list price of your home at a level that reflects a discount from the average sales prices of recently sold comparables in your area. Wield that power and you’ll flush house-hunting buyer traffic through your home — and we all know that the more buyers see your place, the quicker you’ll get an offer. (Who knows — you might even hit a pricing sweet spot where your home looks so much more attractive than the other homes in the same list price range that you end up with multiple offers and overbids — it does happen, even in this market!)
You’re also in a position to distinguish your place from the foreclosure and short-sale competition by presenting it in pristine condition — immaculately clean, attractively staged, and totally decluttered. I drive enough buyers around from bank-owned property to bank-owned property to be able to vouch for the fact that their eyeballs (and their senses of smell!) are truly weary from witnessing all the filth, chaos and mayhem they see in distressed properties. Spend some time and money cleaning and sprucing up your place, and it may really pay off in terms of getting your home sold, and sold fast — discuss your property preparation plan with your Realtor, who can guide you to get the most bank for your buck (and your energy)
The second issue is your decision-making around the refinance issue. The mental switch you need to flick is that this is not so much a hard decision to make as it is a matter of some fairly simple math calculations — it’s just a cost-benefits analysis; how much will it cost you to refi vs. how much you stand to save. Are you ready to do the math?
Get a sheet of paper out and get your mortgage broker on the phone — make sure she’s pulled your credit, and has reviewed your income and assets. Start with your current payment at your current interest rate. Next, find out how much your post-refinance payment would be, and subtract that from your current payment to find out your monthly savings. Multiply that by the number of months you and your Realtor feel that your home — aggressively priced and prepared for the market — is likely to be on the market before it sells. This number is your total projected monthly savings, if you refinance.
Then, ask your mortgage broker to calculate the total cost of refinancing, including title and escrow fees, the loan origination fee, appraisal, and any other closing costs.
Finally — compare the total cost of refinancing to the total projected monthly savings. If the cost of refinancing is less than your projected savings, don’t refi! If your projected monthly savings is greater than the cost of refinancing, go for it!
Oh, one more thing. Make sure you wrap this process up before your place is listed on MLS. Once it’s listed for sale, many lenders won’t do a refi.
1. If your market really is a slow-moving one, and your Realtor cautions you that even an aggressive marketing plan might not get your home sold super quickly, err on the side of refinancing.
2. And if you decide not to refi, make sure you let your mortgage broker know to call you if rates should happen to plummet anytime soon.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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