With these two options, you’ll have to weigh the pros and cons of each loan type along with the costs. If you sell your existing home quickly, we think you’re better off with paying little to nothing in upfront costs, although the interest rate might be higher on the equity loan. On the other hand, if it takes time to sell your home — admittedly an unlikely scenario due to the strength of the seller’s market nationwide — the lower interest rate of a fixed rate mortgage might pay off.
So, those are options if you decide to finance your existing home. But you could also take out a loan on the new property. One benefit of having the loan on the new home is that you’d have the option to keep the loan once the old home sells.
We get that you don’t want to carry a mortgage on the new property, and you can pay it off immediately, but you may find you have another use for the cash (an investment or a second home purchase), and this gives you options.
Your best bet is to sit down with a mortgage lender or mortgage broker and discuss how the numbers play out. Depending on the value of the existing home, you may not be able to borrow the full $300,000 you need. Likewise, lenders may limit the amount you can take out when you do a cash out refinance your home.
For example, if a lender will only let you borrow a certain percentage of the value of the home and the $300,000 you seek exceeds that percentage, you won’t be able to move forward. You’ll be better off taking out a loan on your new home.
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