Your reasons for refinancing may include locking in a lower interest rate to save on your monthly mortgage payments, tapping into your home equity to get cash at closing or even converting your mortgage into a different loan type.
But will you still be able to gain these benefits if you know you’re going to be moving out of your home soon? It may or may not be worth it.
In short, you can technically sell your home after refinancing. However, before you decide to move forward, ask yourself these questions to understand if this financing option will work for you.
Will You Break Even?
The breakeven point refers to when the amount you’ve saved from refinancing is balanced by the cost of refinancing. This is something you may be able to calculate if you know the new interest rate you’d be able to lock in.
Depending on how much you save each month, breaking even can take a while. If you’re selling right after refinancing, you may not have time to see that breakeven point, and it might not be worth it.
Your lender should be able to give you a breakdown of your closing costs. Calculate your breakeven point to determine whether refinancing would make sense for your personal situation.
Will You Have Negative Equity in Your Home?
Home equity refers to the amount you owe on your mortgage and the market value of your home. For example, if you owe $300,000 on your loan and your home’s market value is $350,000, your home equity is $50,000.
However, if you owe more on your loan than your home’s market value, you’d have negative equity. If you owe $300,000 on your loan and you sell your home for $280,000, you’d still owe your lender $20,000 after selling. The money you received from this sale wouldn’t be enough to cover your loan, so it might not make sense to sell at this point.
Are There Prepayment Penalties?
Review your current mortgage documents or give your lender a call to confirm if there are prepayment penalties. This refers to the fee that some lenders charge if you pay off your loan early. The details of these prepayment penalties can vary by lender, but typically, they’re in place for the first couple years of your loan term.
If you find you do have a prepayment penalty, factor this cost into the closing costs of refinancing and your breakeven point. You may have to pay thousands of dollars for the prepayment penalty, and it may not make sense to refinance.
Will You Have an Owner-Occupancy Clause?
Some lenders require an owner-occupancy clause when you refinance, which means you’ll need to stay in your home and keep it as your primary residence for a certain amount of time. If you do end up with a refinance loan with an owner-occupancy clause, you won’t be able to sell your home right away. Moving forward with a sale could result in a lawsuit.
However, it won’t hurt to contact your lender and see if you can negotiate with them if you can’t pass up a refinance.
Does it Make Sense for You to Refinance?
The decision to refinance depends on your own financial goals and home aspirations. But you may want to consider a few details before you take the plunge.
While selling your home and moving could be in your future, it may not be in the immediate future. If this is the case and you have time before selling to see the benefits of refinancing, it could make sense for you.
Taking advantage of a lower interest rate than when you first obtained your mortgage could help you save money even if you know you want to move soon. Depending on how much interest rates have dropped, refinancing could help you save significantly on your monthly payments.
Your home might need some work before you sell, so you may want to utilize a cash-out refinance to gain some funds to put back into your home with remodeling projects or renovations to help potentially increase market value.
What Can You Do if Refinancing Doesn’t Make Sense?
One of the most obvious decisions you can make is to wait to sell. If you find that refinancing could work but selling won’t help you reap the benefits, you may want to consider waiting to sell your home until you at least see some savings, don’t have prepayment penalties anymore or pass the time your owner-occupancy clause is in effect.
Another alternative is to turn your primary residence into an investment property. This way, you could still refinance your loan while gaining some income to help pay for your monthly mortgage payments.
You may also be able to just speak with your lender to see if you can modify your loan terms without an official refinance. Every lender could go about this differently so it helps to have a one-on-one conversation with yours to see what they may be able to do for you.
Will Refinancing Work for You?
So, can you sell your home after refinancing? Yes, but you should take the time to determine whether or not it’ll be worth it for you and your future. Refinancing can be costly and the amount you save from the refinance may not balance out.
Remember that, in general, it all comes down to the numbers. Consult your lender or a financial advisor to help you calculate the costs versus the savings within the context of your goals.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
