Should I Refinance My Mortgage or Sell My Boston Home?

It has been a year to remember in Boston real estate. Despite uncertainty triggered by the initial onset of coronavirus, the Boston real estate market has been red hot and mortgages rates are near historic lows.  

With the combination of a tight inventory of listings, attractive borrowing rates, and Boston residents rethinking how and where they want to live, the housing market has been extremely competitive. As a result, Boston homeowners contemplating their next steps are asking themselves an important question - should I refinance my mortgage or sell my Boston home?

The benefit of refinancing a mortgage

Whether you bought your home a while ago or just a couple of years ago, the significant decline in mortgage rates over the past year has made it extremely attractive to refinance your mortgage. In response to the potential economic impacts from coronavirus, the Federal Reserve took swift action with monetary policies to lower interest rates, resulting in banks offering lower mortgage rates.

The key benefit of refinancing an existing mortgage with a new mortgage at a lower mortgage rate is a lower monthly payment. 

For example, if a homeowner has a $500,000 30-year, fixed-rate mortgage with a 3.75% mortgage rate, the monthly combined principal and interest payment is approximately $2,318. If that same homeowner refinanced to a comparable mortgage product with a new 2.75% mortgage rate, the monthly combined principal and interest rate payment would drop to approximately $2,043. 

The monthly savings of $275 per month would equate to $3,300 over the course of a year.

How much longer do you plan to live in your home?

If you are planning to stay in your current home for many years to come, then the opportunity to save thousands of dollars every year after a mortgage refinancing (sometimes referred to as a "refi") is very compelling.

Now, there are upfront refinancing costs to consider when completing a mortgage refi. A good rule of thumb is to expect refinancing costs of approximately 2% to 4% of the amount of the loan being refinanced. Many banks allow you to avoid the out of pocket expense by rolling these fees into the balance of your new loan.

The closing costs of a refinancing are exactly why you need to have a sense of how long you plan to remain in your home. 

Going back to the above example of a $500,000 loan refinancing, estimated refinancing costs would be approximately $10,000 at the low end. Therefore, you would need to live in the home approximately 3 years for the savings in payment reduction to exceed the closing costs. $3,300 x 3 years = $9,900 compared to $10,000 in closing costs.

Selling your home in a sellers’ market

If you decided that refinancing your mortgage doesn’t make sense for you as you plan to move soon, then there is no better time to sell your home. Boston is in a severe seller’s market!

With countless bidding wars in the Greater Boston area, home seller’s are benefiting greatly from the increased competition. In many cases, owners and their real estate agents are receiving multiple offers on their listings, with many of those offers well over asking price.

In addition to strong buyer demand and better prices, Boston homeowners can also keep more money in their pockets by paying less in broker commissions. For example, Prevu offers Boston homeowner’s a Smart Seller Program that saves the owner up to 3% in fees compared to traditional agents.

Better prices and lower fees is a winning combo.

Where do you go if you sell your Boston home?

If you are planning to stay in the Boston area, you are probably thinking, "Ok, great. I sold my house for a great price. Now what?"

This is a common fear for most home sellers. Where do I go next? Whether you are upgrading to a larger home or downsizing because you need less space, you will likely be buying a new home in your current neighborhood or somewhere nearby. Either way, you will want to be as savvy with your purchase as you were with your sale.

Selling to buy? Learn how to save.

Luckily, there is a new way that homebuyers can save thousands of dollars when they purchase a home, and it is called a commission rebate. With a commission rebate, a buyer’s broker provides the buyer with a portion of the commission they receive for representing the buyer. 

Prevu provides the largest commission rebate in the Boston area - offering homebuyers up to 1% of their purchase price. In addition, Prevu’s Smart Buyer platform allows Boston homebuyers the ability to seamlessly collaborate with their agent online.

Interested in buying a home in the Greater Boston area? Browse listings and begin scheduling property tours today.