Assuming the mortgage of a property you inherited can be a hard pill to swallow, but there is a way to make it more appealing: refinancing. Changing the terms of the loan by taking out a new one can be advantageous, especially you can lower the monthly payment and get a better interest rate.
However, you should tread lightly before committing to this idea because it will have long-term implications for your finances and other aspects of your life. With careful consideration, you will realize that enjoying the proceeds of the sale of your inherited house is more beneficial than transferring the mortgage to your name.
Below are the reasons why you should think twice before applying for a refinance and keep the property.
You Might Not Recoup Your Expenses
Taking out a mortgage refinance is a significant financial obligation. An installment loan ties a portion of your monthly income to the property. Sure, the money you spend on it turns to home equity, which is a form of wealth that can increase your net worth over the long term.
But then again, home equity is illiquid. If you suddenly need cash, a piece of real estate is not an ATM you can use to satisfy your urgent financial needs. Unless you have plenty of disposable income to spare or you intend to use the property as your primary residence, ask yourself why you want to take over the monthly mortgage payment. The chances are that you will not get your money back until the property is sold.
If you can’t rent it out, then keeping the property is a liability because it only takes cash out-of-pocket. If you do choose to become a landlord, make sure your house makes a good property rental to see whether it is a viable investment.
You Will See Your FICO Scores Go Down
Getting a loan impacts your credit. If you do not default, the mortgage will increase your FICO scores in the long run. In the immediate future, though, pursuing the loan will negatively affect your creditworthiness.
Your application triggers a hard inquiry, and loan approval decreases the average age of your credit accounts. If you already have too many monthly bills and other debts to contend with in the first place, having another regular expense to worry about can render your capacity to pay all of your financial obligations somewhat questionable. Delinquency can ding your credit scores severely, and this blemish to your attractiveness as a borrower can follow you around for a long time.
You Do Not Have to Assume the Loan
Perhaps the most compelling reason why you should not refinance the mortgage on your inherited property is it is not a necessity. Even if you currently rent, you do not have to take over the loan for the sake of being a homeowner.
Security is the only real merit of homeownership, and you might even find yourself in a good financial position if you stay a tenant.
What you should strongly consider is selling your inherited property to a cash buyer. If the house does not have any sentimental value to you use, be practical. Turn the property into cold cash you can use to diversify your investments and grow your retirement funds.