Our family had been in our house for less than nine months when the first postcard arrived: “If you’ve been debating selling your home—now’s the time!” My husband, toddler, small dog, and I hadn’t even introduced ourselves to the full neighborhood, let alone thought about leaving it.
The glossy mailer touted the incredibly low inventory and insane competition in the Austin, Texas, market, with homes going over asking and garnering 50-plus offers. The shining example: a place one block away, 400 square feet smaller than ours, and listed for $50,000 more than we paid. I immediately went out for a walk with the dog to stare at our cosmic counterpart.
Then I texted our real-estate agent. Her response: “Oh, yeah, it’s crazy. I’m never moving.” The market insanity was not something she wanted to face, and neither did we, although selling our property did sound like a nice way to cash in. Ultimately, we didn’t want to go anywhere (and we couldn’t afford to go anywhere we wanted to), but that didn’t mean we couldn’t make the market work for us.
The pandemic drove low-interest rates and major competition, and we had gotten in at just the right time (our closing was the first instance I wore a mask in public, but the loan officer only wore gloves). Selling wasn’t ideal, but refinancing was. According to NerdWallet and the Harris Poll, 17 percent of homeowners refinanced—aka started their mortgage over again on new terms for potential savings—in 2020. Here’s how to decide if “rebuying” your house is right for you, too.
Check the Comps
While I still keep a pulse on Zillow out of curiosity, I am by no means a real-estate expert. Thankfully ours, Lindsay Neuren of Compass, had walked us through refinancing when we bought our home—and saw an opportunity when the Austin market went nuts to help us lower our monthly payments.
She offered to pull comps to see if our “Zestimate” was anything close to reality. Based on her research, our house had jumped in value by 25 percent by virtue of the market—and the smart ways we’d spent the past year.
While we had made some aesthetic improvements (landscaping, painting, new light fixtures, wood blinds), most of the work we had done was big-ticket and of the unsexy variety. We replaced our cast-iron plumbing, put in a privacy fence, and tidied up the HVAC. All the type of things buyers would prefer not to deal with—and that we’d prefer not to deal with again. Now that our home was “worth” more, our loan wasn’t technically accurate. Our assets were higher than we had originally signed up for.
Weigh Your Options
While selling would give us a bucket of cash to work with for a new down payment, we’d be putting ourselves in the thick of the wild real-estate market and most likely end up fighting for a house that didn’t feel like a steal. We hadn’t paid enough of our mortgage that the buyer’s closing costs or additional interest from a year’s worth of payments would be worth more than what we’d save by refinancing. There would still be closing and appraisal costs, an application fee, and another credit check to contend with, but they were minor in comparison. And our new interest rate was low enough that we weren’t losing out to our pre-pandemic rate.
For us, refinancing our mortgage was actually less about getting the cost of our payments down, though that was obviously a huge advantage, and more a way for us to eliminate our private mortgage insurance (PMI).
Since our down payment had been lower than 20 percent, we were required to pay PMI on top of our loan. But when our house was appraised for $100,000 more than we paid for it, we were able to reinvest that equity (the portion of the home we fully owned from paying our mortgage) into the house, making our home loan less substantial. Between the increased value and our initial 3.5 percent down payment, our equity was now valued at about 21 percent—saving us from paying PMI and lowering our payments by about $200 a month.
But even if you don’t have PMI to contend with, refinancing could save you by lowering your interest rate, changing your terms from adjustable to fixed rate, or extending your terms and thereby lowering your monthly cost.
Make Smart Upgrades
Once we decided to move forward with refinancing, the process was relatively easy. We reached out to our loan provider, which helped us schedule an updated appraisal. We timed our repairs to complete before that appraisal to ensure the highest possible number (hello, brand-new roof after a hail storm and covered patio!), and we reupped all the paperwork we previously provided at closing. A few emails later, we bought our house (again).
Since we started the process, I’ve gone on several more dog walks to scope out what’s for sale. Our neighborhood is dotted with “Coming Soon” signs, and my phone is filled with texts to our neighbors gossiping about listing prices. I can’t wait to welcome new folks into the hood—especially now that I’ve got extra room in my budget to get them a welcome gift.