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Your Home: Refinance or Upgrade?

Posted November 14, 2012 in Advice Column, Downtown

With mortgage rates ridiculously low right now, most homeowners who haven’t already refinanced are considering either refinancing their current mortgage, or upgrading to a home that’s newer, larger and/or in a better location.  So how do you know what choice to make, and if you’re ready for either one? Here are a few things to consider.

• Refinancing. There are a lot of great benefits to be had when you refinance your mortgage loan. Refinancing to a lower rate will not only lower the amount of interest you’re paying, but it could lower your monthly mortgage payment, decrease the term of your loan, or both.

Three things to think about before you refinance are: (1) You will have to pay closing costs again, either out of pocket or roll them in to your loan, if the lender allows it; (2) Never extend the term of your loan. Your goal should always be to refinance for the remaining term of your current loan or shorten it; and (3) Home prices are down right now, so if your appraisal comes in low, that may impact your loan amount and/or your out-of-pocket expenses.

• Upgrading. If your current home is no longer meeting your needs, or you simply desire an upgrade, now is also a great time to buy. However, you’ll want to be sure you’re ready. There are a lot of costs involved in upgrading, but I have a few tips to help you prepare for those costs as well.

• Pretend to make your new mortgage payment now. Estimate what your new mortgage payment will likely be and either pay the extra to your current mortgage each month, or save back the difference in a special “New House” savings account. Either way you’ll be financially ahead of the game when it’s time to buy, and your budget will already be used to the higher mortgage payment.

• Research your taxes and insurance ahead of time. If you’re moving to a more affluent area and/or buying a larger home, your property taxes and homeowners insurance rates are sure to increase. Get an estimate ahead of time based on other homes in the area and start setting aside that amount each month as well.

• Plan to buy and move in the off-season. According to Realtors.com, Thanksgiving through New Year’s Day is considered the “off-season” for moving. While braving the colder temperatures may not sound enticing, there’s a good chance you’ll score a better deal on your new home, and you may even get a discount on moving expenses. While you can’t always “plan” to sell your current home and buy a new home during this season, don’t avoid this season.

Information provided by Debbie Whittie, CEO of Village Credit Union, 601 E. Court Ave., 243-4400.

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