You know you're ready for a change, but you're not sure how much change. On the one hand, if you refinance your home, you could get a new mortgage with better rates and terms, and you wouldn't have to go through the process of moving. On the other hand, you might be itching to buy a new home and get a change of scenery.
Is it better to refinance or buy a new home?
If you're having trouble weighing the pros and cons, that's because both options can be beneficial in their own way.
Reasons to refinance your home
Refinancing may be one of the smartest money moves you can make. Here are some of the benefits to refinancing your home:
- A better interest rate saving you money in the long-run
- Lower monthly mortgage payment
- Get a shorter term and pay off your mortgage faster
- Remove mortgage insurance
- Get out of an adjustable rate mortgage and move into a low fixed rate mortgage
- Pull cash out of your home’s equity with a cash-out refinance
In many cases, refinancing your home could help you save money and pay off your mortgage faster. Keep in mind that you'll need good credit to refinance your home, especially if you're trying to qualify for a better interest rate. Refinancing can be particularly beneficial when interest rates are low reducing your mortgage payment and saving thousands in interest over the life of the loan. You can even switch to a fixed rate mortgage to lock down that low rate for the life of the loan.
Reasons to buy a new home
If you feel like it's time for a new location, it's definitely worth considering buying a new home rather than refinancing your current one. Here are some benefits to buying a new home:
- You can get a great deal on a new mortgage while interest rates are at near historic lows and your credit is good
- Since interest rates are low, you may be able to buy more home since interest rates are low
- You buy a new home to better match your current needs
- Sometimes buying a new home can save time over remodeling your current home
- Moving to a new area that fits your life
- Moving to areas with better schools
That being said, trying to time the housing market isn't always worth it. There are plenty of ways to save money on a house, even in a seller's market. Plus, a sellers market makes it a great time to sell your current home. If you've outgrown the house you're in and truly feel ready for a new one, the best time to buy new home is now.
Does refinancing affect buying a new house?
Refinancing your current home might affect buying a new house especially if you plan to live in the new house. In most cases, you must live in your primary residence between six to twelve months (depending on loan program) after refinancing it as your primary residence.
If you don't plan to move immediately into the new house after buying it, refinancing your current home your primary residence might work. You'll want to make sure you can qualify for a refinance of your current mortgage.
Is refinancing the same as getting a new mortgage?
When you refinance your home, you're getting a new mortgage to pay off the old one. While you're technically getting a new mortgage, refinancing doesn't work exactly the same as applying for a loan on a new home purchase. Closing costs can be rolled into the new loan for most refinance transactions and you don’t need a down payment for a refinance. Since these “out-of-pocket” dollar amounts are commonly lower on a refinance, they can also make it easier to qualify. Your loan application process may vary depending on your current loan program.
Whether you're ready to refinance your home or buy new home, we recommend checking out our mortgage rates to get a sense of what you might qualify for. If you have more questions about whether refinancing or buying a home is right for you, our experienced mortgage professionals are happy to help.