Is it better to sell my current house with no mortgage to pay for my next house, or to rent my current house and take a mortgage for the new house?
What’s “better” depends on a lot of factors personal to you, including family situation, financial situation, and personal preference… but:The fact that you own your current house free and clear probably means you’re in good financial shape. If you’re staying in the same general area (not moving cross country) it is better to rent out your current house and get a mortgage on the new one.Why?: you can always sell the old house and use the proceeds to pay off your new mortgage if you decide you don’t want to be a residential landlord… but you can never do the opposite. Chances are you will make great money on renting the old house and it will turn into a solid financial foundation for even more in the future. The reason most people don’t do this is because they typically need to pay off their existing mortgage and can’t afford to get a house (let alone upsize) without selling the current one.In general, however, I prefer the opposite (own the one you’re living in free and clear / mortgage the rental property). So, what I would actually recommend is take a mortgage on your existing house (to the max) and use the proceeds to buy the new house, then rent the old house.Why: as you already know, owning your own house without a mortgage provides incredible peace of mind and security. If you lose your job or otherwise fall on hard times, you don’t have to worry about where you live. Yes, there is a tax deduction for mortgage interest but it is outweighed for most people by the psychological benefit and freedom of not having a mortgage.Always plan for the worst case scenario. If you have a rental property and there is an issue with it or you lose your job or anything bad happens… the worst case scenario is you can let it go… let the bank foreclose on it. It’s not ideal, I recommend avoiding it at all costs, but you don’t have to be personally displaced if something bad happens. It is a much better outcome than dealing with issues on your primary residence where you and your family actually live. Also, the cost of the mortgage on the rental property will help offset the tax of the rental income.
Will a home equity loan increase my property tax?
OK, if my property tax is based on the value of my property...let me pose this question/example: Say, I bought my house for $170,000 and put no money down. My house is currently assessed by the town/county at $200,000. That is what I pay property tax on. Between rising property value and tens of thousands of dollars in capital improvements, say my house can be assessed for $250,000. That would be $70,000 more than the remaining principal. Excluding any other data or costs, a 100% home equity loan would provide me with $70,000. Now, if someone came out and said my house was valued at $250,000...this wouldn't increase my taxes? So...the town/county would not find out about this loan or the re-assessment? My tax rate here is 3.5%. I have to be 100% sure.
Can I change PMI company and get a smaller payment?
This really depends on your lender, each one is different on their requirments to remove the pmi. Call your lender direct and ask them about how to get this removed, etc. I know CountryWide requires that on your loan at least 5 years regardless of the equity (even if your value went way up). Wells Fargo requires the pmi for 3 years and then has you pay for an appraisal to get an evaluation of the property. Depending on how long you've had the loan, you might look at refinancing it but I will tell you the market has changed considerably so these options may be limited. Contact a mortgage broker for the best options (they deal with multiple lenders and can shop around for the best deal).
What is a home equity loan?
"up to" is the key phrase here. If you have owned a home for a few years, you have equity built up in it.....In other words, you could sell it for more than you owe on it. Lenders are willing to take a mortgage on your equity in turn for loaning you part of that equity. If you are having fianancial problems, that is a good way to lose your house. Be careful.