By Aarthi Swaminathan
‘My main house is worth $265,000 and I have $108,000 left on the mortgage’
I have a rental property worth $175,000 and I owe $53,000. My principal residence is worth $265,000 and I have $108,000 left on the mortgage.
My question is: Should I sell my tenancy to pay off my principal and be mortgage free? Or should I refinance my rental and withdraw money to pay off my main mortgage?
Worried about the market
“The Big Move” is a MarketWatch column examining the ins and outs of real estate, from navigating the hunt for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at [email protected]
Refinancing may not be your best decision.
Mortgage rates are very high, at 7.3% according to Mortgage News Daily, for 30 year olds. If you have a 15-year mortgage or an adjustable rate mortgage, you may be able to get a lower rate (but not that low, compared to what you could have gotten a year ago). So I doubt it makes sense to you.
If you’re tired of renting, then selling may be your best bet.
If you sell your rental, you will receive, as you say, $175,000. You would be able to pay off the $53,000 mortgage on the rental and the $108,000 you still owe on your principal residence, and be completely mortgage free.
Being debt free is psychologically so liberating. Plus, after fees or other miscellaneous expenses, you would still have over $10,000 left.
But a word of warning: Adjust your expectations. The housing market is down a bit. Sellers have made more concessions to unload their homes. Redfin (RDFN) reports that a record number of homes for sale each week are seeing their prices fall, at 7.9% (compared to 3.7% a year ago).
This includes reducing prices or offering to help buyers reduce their mortgage rate. If you think your home is going to sell at 2020 or 2021 levels and you’re going to get multiple offers, you may need to speak to a real estate agent to reevaluate. But I’m not 100% sure your valuation of $175,000 reflects that.
Renting is tough right now. Rents are falling, according to Apartment List, and the market is expected to cool further in winter. Short-term rentals are also struggling right now, as my colleague Levi Sumagaysay reported in October. Airbnb hosts say bookings have plummeted and they are now turning to long-term rentals.
So if you find that your monthly costs are rising and you are unable to raise rents to meet your expenses, your profits will shrink and sell out. Owning can be a lot of work. Plus, being debt-free gives such financial freedom. So go ahead – sell this rental, if you think you’ll get a good price.
Just make sure you are 100% sure. Once you sell, there is no turning back.
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