Q: We live in a small town, with only 12,000 residents. We bought a family house for $150,000 in 1996. Then the local economy tanked, and prices fell $30,000 to 40,000 per house. The economy is finally rebounding, and housing prices have come back.
The problem is I don’t really like our house and wish to upgrade.
We owe $120,000 on the Mortgage, which is about the current value of the house. I’m 48 years old. Do you think it is a good idea to buy a new home and upgrade to a home that would cost around $200,000?
My top priority is to save for our retirement.
A: It’s a lot less expensive to pay for a $120,000 home than it is to pay for a $200,000 house. So, if your goal is to save for retirement, you’ll do a better job of it by staying in your current residence.
That said, interest rates are still very low and quite a bit lower than what they were when you bought your house in 1996. It’s possible you could sell your home, pay off your mortgage and get a new, bigger home but not pay much — if anything — more each month.
You need to spend some time on the web figuring out how much you can afford to spend — and then thinking about whether you want to spend that or if you’d prefer to stick that cash away for your retirement.
You’re lucky in one respect: Although the value of your home is about 20 percent less than when you bought it 10 years ago, you’ve paid down your loan enough to be able to pay off the lender in full. You’ve lost your equity, but you’re not going to have to come to the closing with cash in hand.
A final thought: can you refinance your current home and then rent it out for enough cash to cover your monthly mortgage, real estate taxes and insurance premiums? If you can, and if housing prices are indeed rebounding, you may wish to do this so that you can take advantage of rising prices for both this house and the next one you purchase.