Should I Move or Refinance?

Reprinted from Keeping Current Matters

Should I Move or Refinance?

The level of equity homeowners have is at an all-time high. According to the U.S. Census, over 38% of owner-occupied homes are owned free and clear, meaning they don’t have a mortgage. Those with a mortgage are seeing their equity skyrocket too. Every time real estate values increase, homeowners get a dollar-for-dollar gain in their home equity.

According to the first-quarter 2021 U.S. Home Equity Report from ATTOM Data Solutions:

“17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value.

The count of equity-rich properties in the first quarter of 2021 represented 31.9 percent, or about one in three, of the 55.8 million mortgaged homes in the United States. That was up from 30.2 percent in the fourth quarter of 2020, 28.3 percent in the third quarter and 26.5 percent in the first quarter of 2020.”

This surge in home equity has given most homeowners the opportunity to use that equity in one of two ways:

  1. Refinance to cash out some of the equity or lower their current payment
  2. Move to a home that better fits their current needs

Let’s break down the possibilities.

1. Refinance

An abundance of equity and record-low mortgage rates can make refinancing a home very easy. Some homeowners choose to refinance so they can lower their payments. Others convert a portion of the equity to cash while keeping their monthly payment the same.

There are many homeowners who could take advantage of lower rates and higher levels of equity, but they haven’t yet. According to an Economic & Housing Research Note from earlier this month, there were over five million homeowners with a loan funded by Freddie Mac who would benefit by refinancing their loan. As of January 2021, there were:

  • 452,122 loans with an average mortgage rate of 6.17%
  • 1,027,834 loans with an average mortgage rate of 4.39%
  • 3,687,780 loans with an average mortgage rate of 4.21%

With mortgage rates currently hovering around 3%, any of these homeowners would benefit from refinancing. They could lower their payments by hundreds of dollars per month or cash out large sums of equity while keeping their monthly payment the same.

Example:

If a homeowner has a $200,000 fixed-rate mortgage with a 6% interest rate and refinances that loan to a 3% interest rate, their monthly mortgage payment (principal and interest) will go from $1,199 per month to $843 per month – a savings of $356 a month, or $4,272 each year.

On the other hand, if they keep their mortgage payment the same, they could cash out a significant amount of their equity.

2. Move into your dream home

The past year prompted many households to redefine what a dream home really means, and it’s something different to everyone. Those who have a high mortgage rate could use their equity as a down payment and perhaps buy their next home without significantly raising their mortgage payment.

Example:

Suppose a person bought a house for $216,000 at the height of the market in 2006. (The median home price in May of 2006). If they put 10% down and took out a mortgage of $194,400 at 6.41% (the average rate in 2006), the monthly mortgage payment (principal and interest) would have been $1,217.

According to the National Association of Realtors (NAR), a typical single-family home has grown in value by approximately $150,000 over the last fifteen years. That means the $216,000 house would be worth about $366,000 today.

After deducting selling expenses, they would be left with about $130,000 ($150,000 minus approximately $20,000 in selling expenses).

A seller could take that equity and use it as a down payment on a new house. Let’s assume they purchased a home for $450,000 (roughly $80,000 more than the value of their current home). If they put the $130,000 down, they could take out a mortgage of $320,000 with a 3% interest rate. The monthly mortgage payment (principal and interest) would be $1,349. Therefore, they could buy a home worth $80,000 more than the one they have today and only spend an extra $132 per month.

Bottom Line

Whether you’re refinancing your house or moving to a new home, your current mortgage rate and your level of equity are crucial in your decision-making process. Look at your mortgage documentation to find out your interest rate, and then contact a local real estate professional to determine the potential equity in your home. You may be surprised by the opportunities you have.

About marilynsellshollisterrealestate

I am a native Californian born in Los Angeles and have resided in San Benito County since January 30, 1959. I attended the University of Southern California. I am a licensed Real Estate Broker, license #00409787, active for almost 45 years. I started my career in 1972 and still am totally committed to the highest level of service to my clients. I am currently associated with Intero Real Estate Services. I am Past President of the San Benito Association of Realtors, serving in the role on numerous occasions. I was a Director of the California Association of Realtors for over 18 years, having served on numerous committees. I also served 2 terms representing the California Association of Realtors at the National level, NAR. I am a certified SRES (Senior Real Estate specialist), since 2005. My community involvement has included membership in the Hollister Rotary Club, serving as their first woman President in 2002. In the late 1960's, I became a member of the El Torillo Chapter of Children's Home Society, and served as President, and was also President of the Tri-County Council of CHS, which is today Kinship Center, and I am currently a Senior Active. I am a member of the San Benito Chamber of Commerce. From 2002-2008, I served on the Board of the Hollister Downtown Association and was their President from 2006-2007, and still serve on sub-committees of this organization. And, I am currently serving my 3rd term on the Community Foundation. My record of performance and my reputation have made me who I am in the industry. I am a household name in San Benito County, when you think of Real Estate. My name is recognized not only in Hollister, but in our neighboring counties, Monterey, Santa Cruz and Santa Clara counties. I have been involved in land development, marketed several subdivisions, sold ranches, commercial leasing, bank-owned properties, short sales and own a Property Management Company, Hollister Rental Properties, for more than 35 years. I am proud of my sales record and for the majority of my career I have been in the top 1% of major Real Estate Companies including Van Vleck Realtors, Cornish and Carey, Contempo, Seville-Contempo, Century 21, Coldwell Banker and finally Intero Real Estate services for the last 15 years. Using my skills in negotiating, mediation and transaction closure, during 2010 and 2011, I was involved with the City of Hollister's First Time Home Buyer Down Payment Assistance Program. The program was the City's Redevelopment Agency, under Bill Avera, with the assistance of CJ Valenzuela who was working with the County of San Benito. CHISPA, a non-profit, was responsible for restoring homes to equal to new condition that the City had taken back in foreclosure, or that they had acquired. When the homes were restored, we put them on the Multiple Listing Service and we went out and promoted the City's Down Payment Assistance Program. Buyers were screened and qualified by our preferred lenders. I facilitated workshops for First Time Buyers explaining the programs. I negotiated the contracts for the City of Hollister and with the Buyers. With this program, I closed 2 homes in 2010, and 4 homes in 2011. On a personal note, I am married to Richard Ferreira, a retired General Contractor/Developer. We have a combined family of six daughters, six grandsons and 3 granddaughters. We share commons interests in travel, movies, entertaining, and Richard has picked up my love of cooking. Our spare time is spent with family and enjoying our grandchildren.
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