With mortgage rates so low, should I refinance to renovate my house—or am I better off buying a new place?
Of course this depends on many factors particular to each homeowner, but it's a good idea to get estimates of both the value of your home and the costs of a potential renovation to help you decide, our experts say.
Consider that 2019 ended with mortgage interest rates lower than they were at the beginning of the year, and economists expect those rates to stay low in 2020, according to MarketWatch. To decide whether to take advantage by refinancing to renovate or buying a new property entirely, start by considering whether you are happy with your current place.
"Does it satisfy all the things you need? Is it big enough, in the right location, near your kids' school, an easy commute to work?" says Nathaniel Faust, a broker with Citi Habitats. "If your current home is not what you want it to be, it might make sense to sell that property, use the equity for your next purchase, and find something else."
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He cautions that although mortgage interest rates are low, New York City is a buyers market now. Depending on when you purchased your apartment and what you still owe on it, you may not come out of a sale with a significant profit. But selling and buying again in the same cycle is one way to trade up.
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"On the flip side, if you're buying you can take advantage of great interest rates, which are as low as I've ever seen them in my career," Faust says. "You also get to take advantage of the buyers market, so it's a good reason to be out looking to buy."
But if you're happy with your house, apart from a few features—say, an outdated kitchen—refinancing to renovate is the better option.
Hire two or three contractors to provide estimates of the costs of renovating your apartment, and consult agents to get an estimate of the value of your home, suggests Deanna Kory, a broker with Corcoran.
"Once you have those costs, make sure that you understand that costs can run over, especially when you’re in the thick of things," Kory says.
Factor in the additional expenses of buying a new home, like closing costs, as well as of renovating, since major upgrades often end up going over budget and taking longer than owners anticipate. Once you have a realistic grasp of your options, start researching what's currently on the market.
"See if you find something that you like that would encourage you not to renovate your current place, but to move straight into something that’s in renovated condition," Kory says. "However, if the search shows you that what is available for that amount isn’t satisfactory, then it may be time for you to bite the bullet and renovate."
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