Hi, Hoping to get some advice as we’re in the middle of a buy/sell and there are a lot of moving parts!
Current situation:
Buying new house in late November
Locked in 7.1% rate with 5% down
Initial mortgage will be 95% of purchase price
Will be selling current house shortly after (hopefully)
The decision:
After selling our current house, I’m thinking we’ll have enough cash to bring the loan-to-value ratio down to 65% if we refinance.
Looking for advice on whether we should:
Refinance immediately with the larger down payment (but possibly at a higher rate)
Keep the original 7.1% mortgage and hold the cash until rates improve
Has anyone been in a similar situation? Are there any clever strategies we can use to save money in the short or long term? What factors should we consider?
Are you under contract to sell your current home? Many people do simultaneous closings for their sale and purchase and roll the proceeds into the new purchase. You’d almost surely get a better rate because your LTV would be much lower, and you’d also avoid PMI.
If you don’t have a buyer lined up this obviously won’t be possible, and many don’t like dealing with the stress of simultaneous closings.
Using the proceeds to pay down the new loan balance would remove the PMI. Could that money appreciate more in alternative investments? Sure. But this is a minimal risk way to get substantial returns with the benefit of lowering your payment as well.
Depending on how rates go, refinancing may be your best bet. But I wouldn’t “save” the money to refinance. There’s no point holding the funds in cash while hoping the rates drop instead of paying down the principal of your new loan immediately.
Do you already have a healthy emergency fund? That should be a priority over paying down debt.
Unless you need the money (emergency fund?), then I would pay down the mortgage balance.
@Bliss
Not under contract to sell yet–for our previous several moves we’ve done simultaneous closings, but this time there are a couple of extenuating circumstances. Fortunately we’ve got quite a bit of equity saved up in the current place, so we have some breathing room. Also, renting is an option as a last-ditch contingency plan, but one we’d rather avoid for the usual reasons.
The purchasing of a new home should be contingent on the sale of your current home… This way you don’t end up in a jam… I hate refinancing, so can’t help you with that 1… I’m always putting down a larger down payment … Now I’m a cash buyer. It’s not about in the next year or 2 or 5. It’s about the next 20 years.
Rate sounds a little high just an fyi-
Aside from that, lots of us can do a 1st 2nd combined.
Rates higher on the second, but it allows you to pay off the second later drop that payment, and not need to refinance assuming rates stay flat.
Lastly, a lot of my lenders offer a “recast” that’s where you make a one time principal reduction payment and they recast your payment based on that amount. Only downside is they can’t promise that it’s an option in the future if they transfer your servicing.