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Mortgage Refinancing, Mortgages, sell your nj home

NJ Real Estate: Refinance My Mortgage or Sell My House?

On Behalf of Veitengruber Law | Jun 30,2021

With historically low interest rates and high property values, many homeowners are thinking about either refinancing their mortgage or selling their home. But which one is the best option in this market? The answer will depend on your specific situation and what kind of credit, debt, and income you bring to the table. Here are some things to think about as you weigh your options.

1.   Can you find a lender that is offering a lower rate?

Every lender is different. It is important to shop around as much as possible when you are looking into refinancing or getting a new mortgage loan. You also need to keep in mind that rates can vary widely even within the same company depending on what kind of loan you are looking at. Lenders tend to charge less interest on 15-year fixed mortgages than 30-year fixed mortgages, for example. And if you are planning to simply refinance instead of getting a new loan, rates are typically even higher. You may have to try a few different lenders to find the opportunity that is right for you financially.

2.   Are these potential new loans actually better than your existing mortgage?

Lower rates are awesome, but they aren't everything when it comes to saving money on your mortgage. What kind of loan you qualify for is just as important. Your lender will be looking at your total financial picture to get an idea of what kind of loan you qualify for. If you are in a better financial standing than you were when you applied for your current loan, you could qualify for a better mortgage rate AND a better type of loan—a fixed rate instead of a 30-year variable rate, for instance. If, however, your income has decreased and you're carrying more debt, it is not likely you will get a better deal on a new or refinanced loan.

3.   What is your loan-to-value ratio?

Your loan-to-value (LTV) ratio compares the amount of mortgage loan with the current estimated market value of the property. If you need a $150,000 loan to pay for a $200,000 home, you have an LTV ratio of 75%. When you refinance, you are most likely cashing out the equity you have in the home or adding closing costs to the overall cost of the mortgage, which will lower the LTV ratio. The lower your LTV ratio, the better interest rate you will qualify for. On the other hand, if your LTV ratio is higher (typically above 80%) or your home's value is less than what you owe on the home, your LTV ratio will qualify you for the highest interest rates possible and you may not even be able to refinance or purchase a new home at all.

4.   Can you afford closing costs and other fees?

If you are leaning towards selling and purchasing a new home, you need to have the cash on hand to cover closing costs, fees, and any other home-buying expenses. These tend to total about 3% to 6% of the loan total. You will also need to have money for a down payment. Selling your existing home can help towards these costs, but with home prices today it is important to make sure you will have the money to cover the costs of buying a new home.

If you are still confused about all the numbers, the best thing to do is reach out to a refinancing expert and/or an experienced real estate attorney. These insider experts can help you compare savings to determine which option—if any—is the right one for you.

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