Life presents many crossroads. One of these big decisions might be whether to refinance and stay in your home, or pack up and move to a smaller place. As a whole, the market is in a good place to explore either option.
Currently, the housing market is robust, and that’s no exception in Texas. In May 2017, the median house price in Texas reached $229,420, the highest ever recorded since 1990 by the Texas A&M University Real Estate Center. That’s nearly 20 percent higher than the same time three years ago. Selling an asset that has increased in value is always a win.
On the other hand, if you have good credit, refinancing can also help increase your cash flow, or pay off your mortgage ahead of schedule.
In either case, if your goal is to save money, these options come with pros and cons. Finding the one that's best for you will require some number crunching along with some soul searching.
|Pros - Downsize||Pros - Refinance|
You can simplify and save. Downsizing to a house with less square footage can bring considerable advantages. A smaller house is easier and cheaper to maintain, and you might even be able to complete some annual maintenance chores yourself. (Cleaning gutters and washing exterior windows come to mind. If, for example, you switch from a two-story to a one-story home.) Since you won't be heating and cooling all those unoccupied rooms, you'll also enjoy lower utility bills. Depending on where you relocate, a smaller house can also translate to lower property taxes. Everywhere you look, a smaller space often comes with money savings.
The local market may make staying worthwhile. At times, a newer, smaller house with all the amenities you seek can cost just as much as the house you are already in. Add in a prime location, and the price of the new place could equate to or even exceed the one you're currently living in.
You could reduce or even eliminate your mortgage. Generally speaking, less square footage comes with a lower price. If you're motivated to eliminate your mortgage quickly because you're, say, nearing retirement, using the equity toward your new home makes that easier. (Add in the savings from your living expenses, and you'll have even more cash to work with.) Better yet, if selling your current home allows you to pay cash on the next, you can move on to your next financial goals.
Your current home fits your lifestyle. Don't forget, home is where the heart is. If your finances are in good shape, and you're happy with everything at your current place - the amount of upkeep, the neighborhood, your decor - perhaps staying put and refinancing is the best option.
|Cons – Downsize||Cons - Refinance|
It's a tight market for less expensive homes. Right now, the competition for less expensive, smaller homes is intense, as more members of the millennial generation become first-time homeowners. Right now, there is 3 months' supply of houses prices at $200,000 or less (a market with less than 6 months' supply favors sellers), according to the Real Estate Center. Elbowing your way into that market means it's important to be prepared.
It doesn't always save money in the long run. If you've paid 15 years or more on your mortgage, you're most likely at the point where you're mostly paying principal. Even is this does boost your cash flow, the bigger question is whether savings would offset the refinancing costs in the end.