“My main house is worth $265,000 and I have $108,000 left on my mortgage.”
Dear Market Watch,
I have a rental property worth $175,000 and have $53,000 in debt. My primary home is worth $265,000 and I have $108,000 left on my mortgage.
My question is: Do you need to sell your rental to pay off your primary and forgive your mortgage, or do you need to refinance your rent and withdraw cash to pay off your mortgage?
worried about the market
“The Big Move” is a MarketWatch column that explores real estate inside and out, from searching for a new home to applying for a mortgage.
Questions about buying or selling a home? Want to know where your next move is? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Refinancing may not be the best course of action.
According to the Mortgage News Daily, the 30-year mortgage rate is very high at 7.3%. If you have a 15-year mortgage or variable rate mortgage, you may be able to get a lower interest rate (although not much lower than what you could have gotten a year ago). So I’m wondering if it makes sense for you.
If you’re sick of renting, selling may be your best bet.
Sell the rental and you’ll get, as you say, $175,000. You can pay off your mortgage of $53,000 in rent and the $108,000 you still owe for your main residence, and get rid of your mortgage completely.
Being debt free is psychologically very liberating. Plus, after deducting fees and other expenses, he still has over $10,000 left.
A small caveat though: adjust your expectations. The housing market is somewhat depressed. Sellers are making more concessions about unloading their homes. The record number of homes sold each week has fallen to 7.9% (up from 3.7% a year ago), according to Redfin (RDFN).
This includes making markdowns or offering to help buyers lower mortgage rates. If you think your home will sell at his 2020 or 2021 level and you receive multiple offers, you may need to consult your realtor and re-evaluate. But I’m not 100% sure your his $175,000 valuation reflects that.
Renting is currently difficult. Rents continue to fall and the market is expected to cool further into winter, according to Apartment List. Short-term rentals are also currently struggling, as my colleague Levi Sumagaysay reported in his October. Airbnb hosts say bookings have plummeted and they’re now turning to long-term rentals.
So if you find that your monthly costs are rising and you can’t raise your rent to cover your expenses, your profit will shrink. That is, sell. Being a landlord is hard work. Plus, being debt free gives you that kind of financial freedom. If you think you can get a good price, sell the rental.
Make sure you are 100% sure. Once sold, there is no going back.
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