Should you refinance or sell? A guide to navigating your homeownership options

At some point, every homeowner faces the classic dilemma: should you refinance your mortgage or sell the house? Selling is a personal decision with plenty to think about—like your home’s size, age, location, and your family’s needs—not to mention the hassle of moving. On the other hand, refinancing can feel just as daunting, with the application process bringing its own challenges and costs.

We know that either of these two choices is not easy to make. So, we thought we’d break them down for you and provide some insights into the benefits of each option so you can make an informed choice.

Signs it’s time to refinance your mortgage:

• Interest rates have dropped from when you bought your home: When mortgage rates drop by at least 1% below your current mortgage rate, it can lead to significant savings on your monthly payments or reduce your loan term. For instance, according to the Mortgage Bankers Association, the Federal Reserve’s recent rate cuts spurred a 20% increase in refinance applications as homeowners sought to lower their costs. But remember that refinancing comes with closing costs and fees, so make sure the savings outweigh those expenses. Be ready to lock in the rate if you’re comfortable with it for the long term.
• Your finances are healthier: If your financial standing has significantly improved by paying off debt, improving your credit score, or because you’ve got a salary increase or a new job, it may be worth it to consider refinancing. Your new financial health may result in a lower mortgage rate score or help you afford a shorter mortgage term option so you can pay your home off faster.
• You’ve built up more than 20% home equity: The longer you own your home, the more equity you build up. Refinancing can allow you to use that equity with a cash-out refinance to access funds for home improvements, debt consolidation, or other financial goals. Or, if you bought your home with a lower down payment, you could refinance to eliminate private mortgage insurance (PMI) on your original loan to reduce your overall mortgage expenses.

Signs it’s time to sell

• You’ve outgrown your home: Your family’s space needs will likely change over time. Whether you need more bedrooms and bathrooms, or it’s time to downsize to something smaller after the kids move out, your current home may no longer fit your family.
• You’ve got to move. Refinancing your mortgage isn’t an option if you need to move to a different area.
• It’s a seller’s market. Favorable seller market conditions can be a great reason to sell if you’ve been considering it. Make sure you work with an experienced real estate agent to price your home competitively for a quick sale so you can afford to buy a new place in your market.

Be aware of the closing costs
Whether you refinance or sell your home, factor in the closing costs and fees that come with both actions. Refinancing closing costs can range from 2-6% of the total mortgage loan and include additional fees. Similarly, selling your home has significant closing costs that can add up, and you also have to factor in the cost of buying a new home. So, be aware of the advantages and disadvantages of selling or refinancing your mortgage. If you have questions about refinancing, contact your local loan advisor for advice!