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Financial expert Michelle Singletary answers questions about personal finance and the economy.
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Refinance or Sell?
Q: We hope to sell our home as soon as possible, but we are not due to leave the area until June 2011. When is it smart and not smart to refinance our interest-only mortgage?
A Visitor, Upper Marlboro, Maryland
A: First, I highly recommend you talk to a real estate agent and find out how long it's been taking for people to sell their home in your area. Given the uncertainty of the housing market and how difficult it's been for many people to qualify for loans, you might want to sell now and rent for a year before you move. If you wait too long to put your home on the market, you may not be able to sell, leaving you stuck with paying a mortgage in Maryland and shelling out for a mortgage or rent at your new location.
It's also tougher for borrowers to qualify for home loans; so, that might add to the time it takes to sell your home.
If you don't want to rent for a year, still keep in close contact with a good real estate agent (get recommendations), to stay on top of just when you need to put your home up for sale--assuming you don't want to rent your home.
Unless you are financially stable and have a good and large savings account, I wouldn't hold on to the home if you're going to be living in another state. It's just too much headache, unless you love being a landlord.
Now, as for refinancing, generally, if you know you are going to sell soon, it's not financially wise to refinance, incurring all the charges and fees connected with that transaction. You won't be in the house long enough to break even from any payment reductions from refinancing.
This of course could be about your interest-only loan. If your interest only loan is about to reset to a payment you can't afford, then you need to talk to your current lender and see whether you qualify for a loan modification under the Obama administration's Making Home Affordable loan modification program. Go to the program Web site for more information.