Refinancing Your Mortgage vs. Selling Your Home in Arizona

There are two primary options when you need to tap into home equity. The first is to sell your house, and the second is to refinance your existing mortgage. Both allow the homeowner to access equity, but the paths differ significantly. When you choose an outright sale, you relinquish ownership and receive proceeds from the sale. Refinancing your mortgage lets you take equity out while keeping the home. 

Each approach has advantages and drawbacks, which may or may not work for your situation. An outright sale unlocks the most cash immediately but means giving up the property. Refinancing helps keep a roof over your head while providing funds but with loan repayment obligations and, if done right, the ability to save money.

This article will outline the pros, cons, costs, and considerations around selling versus mortgage refinancing. Understanding how each path works and the critical trade-offs involved will enable you to make an informed choice tailored to your needs and priorities. The better you comprehend how these two equity release options differ, the better decision you can make on the best route to take.

Whether your goal is getting cash in hand or simply lowering mortgage costs, both sales and refinancing can offer solutions if done strategically. As we explain the key distinctions, you will understand which path optimizes benefits and aligns with your unique financial situation. 

What Is Cash Out Refinance or Mortgage Refinancing?

Mortgage refinancing involves taking out a new home loan to replace your mortgage. To reduce monthly payments, the goal is to benefit from better terms, typically with a lower interest rate.

To refinance, homeowners must apply for a new mortgage loan based on their home’s current market value and submit updated financial documentation. This new loan pays off and replaces the old mortgage loan, often by a different mortgage lender.

Refinancing in the US allows homeowners to adjust from a fixed to an adjustable-rate mortgage or vice versa based on rate advantages. Plus, homeowners can also change the duration of their loan by refinancing into a shorter or longer term. 

Closing costs for refinancing in the US typically run 3-6% of the loan amount and include origination, application, appraisal, and title fees. You can finance these costs as part of the new loan amount or pay upfront if you have the funds.

Mortgage lenders in the US allow cash-out refinancing too, where you borrow more than what you currently owe to tap accumulated home equity for other uses. This route warrants extra diligence, but it is a great way to acquire cash without losing a roof over your head.

The prime advantage of refinancing in the US is securing a much lower interest rate than the existing mortgage offers, thus reducing costs over the long run. But that's only one of the handful of reasons why refinancing makes sense because, for many people, tapping into the home's equity cash reserves helps open up other financial avenues like using the money to start a business.

When Does It Make Sense To Refinance Your Mortgage?

Mortgage rates fluctuate over time, and thus refinancing is worth considering but only under certain circumstances to achieve a better rate or terms. Here are some situations where refinancing your home loan may make good financial sense:

Lower Interest Rate - If current rates dip significantly below your mortgage rate, refinancing can lower your interest costs and monthly payment. Reducing the rate by at least 1% may justify the costs of refinancing the existing mortgage because you will save money.

Shortened Loan Term - Refinancing into a shorter loan duration while low-interest rates mean paying less interest over time, even with a fixed-rate loan. This grows equity faster despite a higher payment.

Switch Loan Type - Moving from an adjustable rate to fixed-rate mortgage locks in your rate long-term and provides stability. The reverse swap can also be warranted depending on rate differences.

Debt Consolidation - Refinancing and wrapping up higher interest debts like credit cards into your mortgage could mean you save substantially on interest paid. But this route poses risks if not acting diligently to pay down debt.

Cash-Out Equity - Refinancing to a higher balance to access your home’s accrued equity provides funds for expenses like home improvements, medical emergencies, etc. Extra diligence on loan repayment is essential in most cases.

By running the numbers with your lender and assessing your personal finance goals, you can determine if refinancing strategically aligns with your situation. Timing is key - being attuned to rate movements and your needs makes seizing the right refinancing opportunity worthwhile.

Selling A Home in Maricopa, AZ

Maricopa remains one of the fastest-growing areas of Arizona, attracting families, retirees, and real estate investors drawn to its warm climate, recreational amenities, and relative affordability compared to the pricier parts of the Phoenix metro area. Present Maricopa homeowners now benefit from a growing demand coupled with low housing inventory, which presents ample reason to consider selling your house in today’s favorable market conditions.

There are many reasons you might decide to sell as a homeowner, ranging from upgrading to a bigger home to moving out of the city. However, often in these cases, a mortgage refinance isn’t a viable option.

High Buyer Competition Translates To Top Sale Prices

Intense competition among buyers in Maricopa’s undersupplied housing market translates to homes selling faster and at higher prices, often above asking. Home values jumped over 13% in Maricopa last year alone. This provides sellers incredible leverage to command top dollar on your property.

Fast Sale Timelines

Not only are Maricopa homes selling for more, but they are trading hands much quicker. Days on market average are just over 20 currently versus 60 days historically. There’s no time to capitalize on today’s accelerated sale timelines. However, a lot depends on the type of home and its condition.

Move Up While Interest Rates Are Low With Low Monthly Mortgage Payment

The housing boom in Maricopa also means more move-up home inventory becoming available. Generally, low mortgage rates enhance buying power if trading to a larger or nicer home in Maricopa. Locking in a rate before the additional rise in interest rates makes financing the move easier. This is probably especially true for those in the market for FHA loans because it is mainly younger people who are just starting to grapple with their finances.

Whether looking to relocate out of state or move to a new area of Maricopa, homeowners have the best opportunity in today’s market conditions to get top ROI on a sale while demand is still outpacing supply in the city. However, this will significantly depend on when the owner purchased their present property and for how much.

Challenges of Selling A Home Outright

While the Maricopa housing market presents prime opportunities for sellers right now, homeowners selling for the first time face some unique challenges that need the experience to guide them.

We highlight a few of these challenges below:

Determining Accurate Pricing

Realistic pricing is critical to attracting buyers quickly without overshooting or undershooting market value. First-timers often need help to gauge the optimal listing price and respond to appraisals.

Preparing the Property 

Inexperienced sellers can underestimate the fixes, deep cleaning, staging, and decluttering needed to prepare a home show in the accelerated Maricopa market. It’s a heavy to-do list for rookies but no less important than any other part of the sales process.

Marketing Effectively

Maximizing online and offline marketing reach to capture buyers in a competitive landscape takes skill and local connections. Newbie sellers learning DIY strategies on the fly can fall short and often in more ways than one, which leads to their homes sitting on the market for longer than they should.

Navigating Negotiations 

Fielding multiple offers while assessing contingencies, inspection requests, and competing counteroffers becomes overwhelming without expertise. New sellers risk missing red flags and thus may even leave money on the table when negotiating.

Handling Contract Timelines/Details

From home inspections to renovation work, first-time sellers can trip up on various deadlines and paperwork requirements as the sale progresses. Lacking experience exposes them to costly delays and errors.

Refinance If Your Interest Rate Is Too High

The one thing we can all be sure about is that mortgage rates fluctuate over time, so when is the ideal time to refinance your home loan or mortgage? Understanding when refinancing benefits strategically will help determine if and when to make a move.

The prime motivator for refinancing is getting a lower interest rate to reduce your payments, which we discussed above. As a rule of thumb, if current rates available are at least 0.5 to 0.75% less than your existing mortgage rate, refinancing can pay off long-term through interest savings. Use a mortgage refinance calculator to estimate potential monthly payments and interest cost differences to quantify savings.

If you have an adjustable-rate mortgage, refinancing into a fixed rate as rates hit lows eliminates uncertainty over future rate shifts. This stabilizes payments for budgeting ease. Even a tiny rate drop with a fixed-rate mortgage refinance can mean substantial lifetime interest reductions. However, the reverse, i.e., rising mortgage rates, often mean you will be paying more, and thus, it isn't worth refinancing, and a sale would probably be a better option.

Then there is also refinancing to pay the mortgage off sooner. Refinancing into a shorter mortgage term at low rates lets you pay the loan off quicker, saving on interest costs long-term. Conversely, opt for a longer duration to lower monthly payments in the short term.

The math supports refinancing strategically in specific situations — typically when rates decrease considerably or if you need to tap into equity. Work closely with your lender and assess total costs against interest savings. Refinancing at the right time aligns your mortgage with your personal financial goals.

You Need To Start With A Mortgage Evaluation

Are you considering refinancing or selling your home? The starting point is comparing your mortgage rate and payments to current options. However, this can end up beings more complex than it sounds. Rates and loan types vary significantly by mortgage brokers and financing situation, so you must remember that. Doing your due diligence is crucial in determining the optimal path forward because this is something you don’t want to get wrong.

While you only have one set rate and monthly payment now, dozens of alternative mortgage products exist across multiple lending institutions. Fixed and adjustable rates, repayment terms of 15 to 30 years, cash-out refinancing – the possibilities are vast.

This is why mortgage experts strongly advise soliciting multiple quotes from lenders and brokers when assessing alternatives. Look beyond surface-level advertised rates and read the fine print. Dive into loan estimate details and use mortgage calculators to gauge the long-term cost differences. Crunch the numbers on break-even timeframes to determine if it helps accomplish your personal financial goal.

Remember that you may no longer qualify for your current loan type based on today’s debt-to-income ratios and credit scores. Be open to options that make the most financial sense now.

Since there are many loan types and lenders to choose from, time invested in research will help to uncover the optimal mortgage or refinance for your now-changed financial situation. Rushing the process risks missing potential savings, and you could even receive higher monthly payments. Become your own best advocate through education. The more informed you are as a borrower, the better the outcome you can achieve. 

What Impacts Refinancing Your Mortgage?

Getting a new mortgage or refinancing an existing one involves many variables that impact your loan terms, interest rate, and monthly payment. Understanding these key factors allows you to strategize for the best outcome.

Loan-to-Value Ratio

Your loan-to-value (LTV) ratio compares the mortgage amount to the home's appraised value. Lenders view borrowers taking out loans with lower LTV ratios as lower risk. You may qualify for better rates with the following:

• 20% down or more on a purchase (avoids PMI)

• Significant equity already if refinancing

A higher LTV equals higher rates. Boost your down payment or equity position to lower the ratio.

Credit Score and History

Lenders scrutinize your credit score and history to assess risk and reliability. Good credit means better chances for approval and lower interest rates. If needed, spend time improving your score before applying. Make sure to make on-time payments, lower balances, and address errors.

Debt-to-Income Ratio

Lenders look at your total monthly debt payments (mortgage, other loans, credit cards, etc.) versus gross monthly income. Lower DTI ratios improve your borrowing case for better loan terms. Pay down debts and secure cosigners if necessary to lower your ratio.

Upfront Closing Costs and Fees

Expect to budget for costs like the down payment if buying, application and origination fees, appraisal, inspections, taxes, title charges, and more. Refinancing incurs similar closing costs. Shop across different lenders to minimize fees. Remember that financing costs in your loan amount increase the total interest paid.

It is thus essential to improve your LTV, credit, DTI, and budget for all costs to ensure you have the maximum mortgage advantage. Being an informed, strategic borrower leads to significant savings.

However, there are times, when mortgage refinances may need clarification. That’s when you’ll want to consider selling the home for cash.

When is Selling Outright A Good Idea?

Facing a financial need, homeowners have two options for tapping home equity - refinancing or selling the property outright. There are several scenarios where foregoing a mortgage refinance and putting the house on the market makes better sense.

Moving to a New Area

Relocating across town or out of state due to a job change or retirement plans means your current home is no longer a place where you can live. Selling outright allows severing ties to the property rather than keeping and renting it out long distance, which, let's admit, can be a hassle. Plus, you can use sale proceeds to fund the move and new home.

Upsizing Your Living Situation

If your family or needs have outgrown your current home, selling outright provides funds to upgrade to a more spacious property. Refinancing keeps you locked into a house that no longer works while taking on higher debt. When you have cash, you can buy another, larger piece of property or put a significant down payment on it, reducing your monthly payments.

Reducing Housing Costs

Empty nesters or retirees may find downsizing is the best way to simplify their lives and lower costs. Selling outright lets you bank those equity proceeds and purchase a smaller, lower-cost home outright with cash. Often retirees and empty nesters will move to a smaller home in a safer area or downtown near everything they need. This reduces or eliminates housing costs and, in many instances, reduces costs associated with commuting to points of interest.

Cashing Out Major Equity

When significant equity exists, an outright sale unlocks more funds than a cash-out refinance, which lends against a percentage of equity. Sales proceeds can fund large purchases or life events.

Relationship Changes

Following a separation or divorce, couples often prefer the finality of selling the shared home immediately rather than having one party maintain ownership. The asset can be divided cleanly through the sale and helps avoid lots of future hassle.

Executing an outright sale provides advantages in specific situations like these. You get more equity, sever lingering ties, and gain the flexibility to pursue a new chapter in life. However, there may be other reasons you might feel that selling is a better option, which is not listed above.

When Can’t You Sell A Refinanced Home?

Now there are instances where you can't sell your refinanced home. This is something to remember when deciding between selling for cash or refinancing. Refinancing makes more sense if you still have a few years before the loan is paid off. 

Below are a few conditions under which you might be unable to sell a refinanced home. Something you should be aware of when deciding between selling and refinancing.

Being Unable to Cover the Payoff Amount

If you refinance and cash out much of your home’s equity, your loan balance can exceed the eventual sales price or value of selling. This leaves you unable to satisfy the payoff required to close the sale and release the property to the buyer. Avoid tapping into too much equity to retain flexibility.

Facing Early Repayment Penalties

Depending on the refinance terms, selling in the first few years may trigger early repayment or “exit” fees, also called prepayment penalty, for retiring the loan before maturity. You’ll be dinged extra on a sale. Carefully review the refinancing contract so this doesn’t derail plans later.

Breaching Seasoning Requirements

Most cash-out refinances impose minimum “seasoning” periods before allowing the sale, often 12 months. This ensures the lender receives interest payments for some time and avoids quick flips, which are deemed to be risky. A sale before seasoning maturity triggers contract default or fees.

Violating Occupancy Requirements

Even non-cash-out refinances often include an occupancy clause requiring you to maintain the home as a primary residence for 12 months post-closing. Trying to sell soon via relocation may breach this requirement if the lender finds out. Again, this means you should scrutinize the fine print on the contract.

Losing Favorable Loan Terms

Selling shortly after a refinance forfeits your new favorable rate and terms over the long haul. When closing costs are factored in, you likely need at least a few years to benefit and recoup expenses through interest savings. Don’t undo your work quickly.

In specific scenarios following a refinance, a fast sale timeline may be obstructed or become cost-prohibitive. Carefully assessing the implications before refinancing helps avoid surprises and gives more latitude when ready to sell.

Tips For Homeowners Deciding To Sell

Calculate your home equity - Determine current market value minus your remaining mortgage balance to establish how much equity exists to cash out potentially is the first place to start. High equity provides more flexibility.

Research market conditions - Review recent comparable sales and economic projections to gauge if selling now is a good idea versus waiting. Sometimes, you might want to wait it out because you see prices rising, and you’d want it to plateau at some higher point when you can get more money.

Consult professionals - Speak to qualified real estate agents, lenders, and financial advisors to discuss pros, cons, and alternatives tailored to your situation. Expert insights provide clarity and will help you decide either way. Plus, keep in mind that economic conditions are constantly changing, so today’s latest market information may be outdated six months from now.

Crunch the numbers - Run calculations on sale proceeds or cash-out refinancing versus remaining mortgage debt after. Ensure you retain enough equity and affordable payments. Affordable payments are essential because, after all, you want to afford to pay your mortgage, even if your finances go sideways for a short time.

Evaluate goals - Consider if refinancing or selling better aligns with your current lifestyle needs, retirement goals, or relocation plans. Your objectives should guide the decision. We discussed this in more detail earlier, but this is where there is no one right solution for everyone. 

Take the time to educate yourself before deciding between selling your home or refinancing strategically based on market factors and personal financial circumstances.

Final Word

Before you sell the home, it is essential to ensure you are not losing money when you sell. You might start with a high asking price, but negotiations and prevailing conditions may drive it down. So, you’d want to start with keeping that in mind.

If you see that property values have declined, your home is worth less than what you owe in mortgage payments. In industry terms, this is called being underwater on the loan. At this point, selling the home may yield less money to pay off the mortgage; you need to repay the remaining balance out of your pocket, which is probably not a good position after selling.

Plus, consider that all real estate transactions have a cost. For starters, you have closing costs and real estate agent commissions. However, this means that if you don’t have enough equity in the property to cover the costs, this will end up costing you money. This can happen when you refinance before selling the home or selling a few months after buying. 

Deciding to sell or refinance your mortgage isn’t a decision that should be taken lightly. It is a big decision, and thus you should consult with experts. An agent should be able to help you decide, mainly because they can provide you with the average prices of homes sold in your area. This will tell you the home's market value instead of letting the lender determine its value.

When you fully understand all the options in light of present market conditions, assessing your current financial condition is easier to decide what to do. As we’ve said earlier in this article, there is no right or wrong decision; it depends on your financial and personal goals considering present market conditions.

FAQs

Q. When would refinancing your existing loan be a bad idea?

A. Refinancing tends to be harmful if interest rates are higher than your current mortgage rate. Refinancing also may not make sense if you plan to move soon.

Q. Is it cheaper to refinance with my current lender?

A. Not necessarily. When considering a refinance, it's wise to shop for the best rates and compare loan estimates from multiple lenders. While it is easy to stick with your present bank or mortgage company, a little research may help uncover much lower rates with better terms and fees from other institutions.

Q. How do I get the best refinance loan rates?

A. The lowest refinance rates go to borrowers with excellent credit scores, low debt-to-income ratios, sizable home equity, and people who comparison shop for lenders. But they are also ready to negotiate more favorable terms. However, meeting a lender’s requirements shows you qualify for the best pricing tiers.

Q. Are refi rates higher than purchase?

A. interest rates on refinanced mortgages tend to run slightly higher than mortgage rates for new home purchases. This pricing difference reflects the different risk profiles perceived by lenders. 

Q. Why is my refinance rate so high?

A. borrowers with lower credit scores, high debt levels, low home equity, or those not shopping competitively among multiple lenders typically see high refinance rates. Improving your credit and financial profile can help lower elevated refi rates. 

Q. When is the best time to sell my home?

A. The optimal time to sell is when you can maximize your sale price, whether due to high buyer demand that outpaces low inventory in your market or before declining values, where you anticipate a downturn ahead. Understanding your local market is critical, and that’s where speaking with a seasoned realtor can help you decide.

Q. Should I hire a realtor to sell my home?

A. Yes! Selling a home isn’t as easy as someone people first assume. Many steps are involved, including open houses, listings, negotiations, etc. If you don’t have much experience with these things, you may fail to sell your home for close to the asking price or at all.