If Moving Means Possible Higher Rates on a Mortgage, Why Sell?

The housing market is going sideways, and inventory is tight. This is making it a challenge for buyers and sellers alike.

One of the biggest factors to consider is the potential impact of rising interest rates on your mortgage. If you sell your home now and buy a new one, you’ll likely have to lock in a higher interest rate. This could mean higher monthly payments and a smaller mortgage.

Selling in a Tight Market vs. Higher Interest Rates

For example, if you currently have a conventional 30-year fixed-rate mortgage with an interest rate of 3%, and you sell your home and buy a new one with an interest rate of 5%, your monthly payments could increase by hundreds of dollars.

Of course, the amount of your monthly payments will also depend on the size of your mortgage. If you’re buying a more expensive home, your monthly payments will be higher regardless of the interest rate.

Another factor to consider is the length of your mortgage. If you lock in a higher interest rate, you’ll likely have to pay more interest over the life of your mortgage. This could add thousands or even tens of thousands of dollars to your total cost of homeownership.

Evaluating the Financial Trade-Offs of Selling Your Home

So, if you’re considering selling your home, it’s important to factor in the potential impact of rising interest rates on your mortgage. If you’re comfortable with the higher monthly payments and the increased cost of the mortgage, then selling your home may be a good option for you.

Sellers can find encouragement in the continued strength in certain markets. Although not reaching the unprecedented levels witnessed in 2021, Hawaii, Florida and Rhode Island experienced the largest average equity gains at $24,900, $24,500 and $23,700 respectively. Thirteen states and one district posted annual equity losses: Arizona, California, Colorado, Idaho, Louisiana, Massachusetts, Minnesota, Montana, Nevada, New York, Oregon, Utah, Washington and Washington, D.C..

“The average U.S. homeowner now has more than $274,000 in equity — up significantly from $182,000 before the pandemic. Also, while homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity.”

– Selma Hepp, Chief Economist for CoreLogic

Marry the House, Date the Rate

One of the most important things to remember when it comes to buying or selling a home is that your mortgage is a long-term commitment. You’ll be making payments on it for years, so it’s important to choose a rate that you’re comfortable with.

That’s why I like to use the analogy of “marrying the house and dating the rate.” When you buy a home, you’re essentially making a commitment to live there for the long haul. The rate on your mortgage, on the other hand, is something that can change over time.

Research Findings: The Link Between Interest Rate Increases and Home Selling Decisions

A recent survey by Bankrate found that 42% of homeowners with a mortgage said they were less likely to sell their home if interest rates rose. The survey also found that 35% of homeowners said they would be willing to make other sacrifices, such as delaying retirement or spending less on other expenses, to keep their low-interest rate mortgage.

Another survey published in January 2023, conducted by the National Association of Realtors, found that 37% of homeowners said they were “very likely” or “somewhat likely” to stay in their current home for the next five years. This is up from 31% in 2021.

These surveys suggest that many homeowners are reluctant to sell their homes, even if interest rates rise, because they are worried about the impact of higher monthly payments. They are also concerned about the potential for home prices to decline if interest rates rise too quickly.

Should I Stay or Should I Go

Not all homeowners are staying put. Some homeowners are selling their homes because they need to move for work or other reasons. And some homeowners are selling their homes even though they have a low-interest rate mortgage because they believe that they can sell their home for a profit and then buy a new home with a lower interest rate.

If you’re thinking about buying a home, it’s important to focus on finding a home that you love and that meets your needs. The rate on your mortgage is important, but it shouldn’t be the deciding factor.

After all, you can always refinance your mortgage if rates go down. But you can’t change the house you live in.

We’re Here to Help You Make a Decision That’s Right for You

At the end of the day, rising interest rates are a major factor to consider, and you’ll need to decide if you’re comfortable with the potential impact on your monthly payments and the overall cost of your mortgage.

That’s why it’s a good idea to talk to an Embrace Home Loans® officer. They can help you assess your situation and the best financing option for your individual needs.