In todayâs real estate market, many homeowners feel stuck. With 30-year mortgage rates averaging around 7%, those who secured rates as low as 3% during the pandemic are hesitant to sell. The thought of losing their low mortgage rates has made the housing market unusually slow.
However, major life decisions rarely align with the perfect market conditions. While giving up a low mortgage rate might seem unthinkable, mortgage experts say there are several scenarios where making the switch to a new home can be a smart financial decision.
Hereâs when it might make sense to give up your low mortgage rate:
Scenario 1: Your Familyâs Needs Are Changing
Life events often create a need for a bigger or different home. Growing families might need more bedrooms, larger yards, or a better school district, while others may want to reduce their commute. In these cases, the long-term benefits of a new home may outweigh the initial pain of a higher mortgage rate.
Debbie Calixto, sales manager at loanDepot, notes that these lifestyle upgrades can make the change worthwhile. For example, Chris Heller, president of Movoto.com, worked with a family who traded a 2.9% mortgage rate for a home in a top school district. Although the higher rate stretched their budget initially, the benefitsâespecially in terms of their childrenâs educationâoutweighed the extra costs. Plus, the family expects their homeâs appreciation to offset those costs in the long run.
Other life changes such as marriage, divorce, or health issues may also necessitate a move. In these cases, the emotional and practical benefits of a new home often take priority over financial considerations, even with a higher mortgage rate.
Scenario 2: Downsizing Can Be Beneficial
As homeowners age or their circumstances change, downsizing to a smaller, more manageable home can make financial sense. Empty nesters, for example, may find that a smaller home reduces maintenance and energy costs, making the higher mortgage payments easier to manage.
Heller recalls helping a retired couple move from a suburban home to a more efficient condo. They prioritized convenience and lifestyle benefits over keeping their old low mortgage rate. As people age, physical needs can also drive the decision to downsize, especially when single-story homes with accessibility features are more practical. In such cases, accepting a higher rate for a more suitable home might be worth the tradeoff.
Scenario 3: Builder Incentives Can Make the Switch Easier
Many homebuilders are offering attractive incentives to make the high-rate environment more palatable. These incentives include home upgrades, closing cost credits, and even temporary rate buydowns.
Jeff Taylor, a board member of the Mortgage Bankers Association, points out that between 31% and 33% of homebuilders have been reducing prices by 5% to 6% each month since July 2024. Additionally, around 60% of builders are offering some form of buyer incentive, making it easier for buyers to navigate the market and offset the cost of a higher mortgage rate.
Scenario 4: Career Changes May Require a Move
A new job opportunity or career advancement may require you to relocate, even if it means losing your current low mortgage rate. Heller worked with clients who traded a 2.75% mortgage rate for one at 6% to take a promotion in another state. Despite the higher rate, the increased salary and long-term career benefits made the move financially sound.
In such cases, the financial benefits of the new job often outweigh the higher monthly payments, making the move worth it in the long run.
When to Hold Onto Your Low Mortgage Rate
In some situations, keeping your low mortgage rate may be the smarter choice. For example, Calixto worked with a family who wanted to move to a new neighborhood. Despite having enough equity for a down payment, the higher interest rate and increased property taxes would have made the new home unaffordable.
As Calixto advises, âAffordability should always be your top considerationâno matter how compelling the reasons to move.â If your current home meets your needs and thereâs no urgent need to move, holding onto your low mortgage rate may be the best option.
The Bottom Line
Deciding whether to trade a low mortgage rate for a new home is not a decision to be taken lightly. Start by reviewing your finances, including the equity in your current home and your budget for the new home.
Once you have a clear understanding of your financial situation, consult with several lenders to explore your options, including adjustable-rate mortgages (ARMs) and potential rate buydowns. A local real estate agent can also help you navigate current market conditions and identify available incentives. With the right information and guidance, you can make an informed decision about whether itâs time to give up your low mortgage rate for a new home.