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Should you remodel or move?

February seems to the time that homeowners start thinking about one of the biggest decision they will ever face.  Should you remodel or move? There are a few important financial questions that should be answered before deciding which option is best for your situation.
What is the first question that needs to be answered in this decision?
By far the most important question is which option is going to be most cost effective for the long term and have the least financial impact over the long term. Moving or major remodels both have different costs over the long and short term.
What is the number one reason that some people make the wrong decision?
Only looking at the cost of the remodel or the cost of the new home can be a fatal mistake. Don’t forget to take into consideration the interest you will pay which impacts the overall cost of remodeling or moving. The overall total cost should definitely be a major consideration.
What else can be a long term consequence of remodeling instead of buying?
Depending upon your neighborhood, a remodeling project might make your house so unique that it doesn’t deliver the value later.  For example, if you make your house two times the size of any other house in your neighborhood, you are likely not going to get the value back no matter how long you stay.
What are other mistakes to avoid in remodeling versus buying decision?
Make sure your remodeling project or reason for buying a different home doesn’t create another problem in the future. You have to think about what you currently have in your home and make sure your remodeling project or new purchase doesn’t diminish what you currently enjoy.
What are reasons people decide to do the remodel?
If you have a really low fixed rate on your mortgage, you love the neighborhood and you expect to stay for 7 years or more, remodeling might be the best choice. Also, it is okay if your remodeling project costs more if it provides added value.  Sometimes location and schools are worth the added expense.
Are there any mistakes to avoid when paying for the remodeling project?
Probably the biggest mistake is that people don’t look at all of their options. Many automatically default to a personal loan or a home equity loan which might be the best option but they should also consider a first mortgage refinance with cash out if it makes sense financially.
What is the benefit of this option?
Usually the rate for all of your debt will be much lower and you can have a long repayment term.  Both of these will make your monthly payment much lower. This helps free up funds to pay off higher interest rate debt faster and also continue to save for other expenses like retirement and college.

Posted: 2/9/2017 with 0 comments

Categories: Homeownership, Money Matters, Planning

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