Financing in Riverside>Question Details

PD, Home Seller in 60546

Is it worth re-financing a condo your selling?

Asked by PD, 60546 Tue Oct 25, 2011

I've had my condo on the market for the last couple of years and I'm paying close to 7.6% interest. If I would've known then that the condo would be on the market this long, I would've re-financed earlier. With interest rates so low right now, I'm wondering if it's worth re-financing and paying the closing costs.

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Richard Littlefield’s answer
If you are going to turn around and sell it, it would not pay if you have any closing costs. For example, let's say you lower your payment by $200 a month but paid $2000 to get the loan. Then sold the home in one month, You would have just lost $1800. If you get a no closing cost loan you do not have that problem, but the lender would lose the $1800 because they paid those closing costs hoping to get a higher rate.

That is why the fact that you have had the property on the market will be a problem, but many lenders will do it if you take it off the market and sign a letter saying you intend to stay in the property. See if the lender is still paying those closing costs in return for a higher rate if you do a no closing cost loan.
0 votes Thank Flag Link Thu Oct 27, 2011
Refinancing usually makes sense when you are going to recoup the amount you pay in closing costs in the form of lower payments over how long you will have the loan for. If closing costs are $3k and you only plan on being in the loan for 6 months, then you would need to save $500/mo in order for you to break even. However there is another option that homeowners can potentially have, and that is called a "no cost" refinance, where the borrower accepts a higher interest rate in lieu of paying any closing costs (the higher rate generates a $ credit from the lender towards your costs is how it actually works). If your closing costs are $0 then you need to save $0 a month to break even - you won't get the lowest possible rate you could get, but being currently at 7.6% there should still be the potential to save. Usually the difference in rate is .25% to .50% higher.

Now in order to refinance your condo lenders will require it to be off the market, some just 1 day, some 3 months, some 6 months, it'll vary as each lender is free to create their own requirement. Usually not much more is needed than that, lenders used to require you sign something stating you have no intentions of putting it back on the market again but I haven't seen that in quite some time.

Since you have had it listed, a lender may choose not to pay your closing costs because by doing so they are looking for you to have the mortgage for a certain amount of time (6 months minimum but they are making their money in interest rather than the fees, so the longer you have the loan the happier they'll be) and I bring this up because if they know you are possibly going to re-list the property and pay their mortgage off after they give it to you, they won't be making that interest.

Also the fact that you've had your condo on the market for a couple years without it selling may be an issue to some lenders, as it doesn't seem like it's very marketable (or at least at the price it's listed at). Not all lenders will make a deal about it, but there is that potential.
0 votes Thank Flag Link Tue Oct 25, 2011
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