Should You Sell Your Home If You Have a 3% Mortgage Rate? A Central Ohio Move-Up Guide

You bought your home when mortgage rates were around 3%. Maybe you've been there for several years, built up some equity, and watched your home's value increase.

But things have changed. Perhaps your family needs another bedroom, you're working from home and need an office, or you've simply reached the point where your current house no longer works as well as it once did.

There's just one problem. You have a mortgage rate you probably won't see again anytime soon.

I understand why homeowners hesitate. Giving up a 3% mortgage to take on a higher interest rate is a significant financial decision. But focusing entirely on the interest rate can keep people from looking at the bigger picture.

How much more would a new mortgage actually cost?

Let's start with a simple example to understand how much interest rates affect a monthly payment.

Suppose you originally borrowed $250,000 with a 30-year fixed mortgage at 3%. Your original monthly principal and interest payment would be approximately $1,054.

If you borrowed that same $250,000 using an illustrative 7.25% rate on a new 30-year mortgage, the monthly principal and interest payment would be approximately $1,705.

That's a substantial difference. And if you're purchasing a more expensive home, you'll likely need to borrow more money.

However, if you've owned your current home for several years, your remaining mortgage balance and remaining loan term are different from when you purchased it.

Your actual current payment, mortgage payoff amount, and the amount you'd need to borrow for your next home are what matter.

That's why I recommend looking at the complete financial picture before deciding whether moving is too expensive.

How much equity do you have in your current home?

This is where the conversation often gets more interesting.

If you purchased your home several years ago, you may have built substantial equity through a combination of mortgage payments and increases in property value.

Let's say your home could sell for $500,000 and you owe $250,000 on your mortgage.

That gives you approximately $250,000 in gross equity.

Of course, that doesn't mean you'll walk away from closing with $250,000. Selling expenses, prorated property taxes, mortgage payoff adjustments, and any additional liens must be considered.

But the amount remaining after those expenses could provide a significant down payment on your next home.

And that's important because the more money you can put down, the less you'll need to borrow at a higher interest rate.

Before deciding whether moving is too expensive, I recommend finding out what your home would realistically sell for and how much money you'd have available after closing.

Related reading: How Much Will I Net From Selling My Home?

Could your equity help offset the higher interest rate?

Yes, depending on how much equity you have and the price of the home you want to purchase.

Let's use another example.

Now, $2,933 per month is a significant payment. It may or may not fit comfortably within your budget.

But this gives you a number to evaluate instead of assuming that moving is impossible simply because mortgage rates have increased.

You'll also want to consider property taxes on your next home. In Central Ohio, taxes can vary considerably between communities and individual properties. Insurance, maintenance, utilities, and homeowners association fees also affect your total monthly expenses.

The goal isn't to make the numbers work at any cost. It's to determine whether the move makes financial sense for your household.

Could seller concessions help lower your new mortgage payment?

Here's another option worth exploring when you're considering moving to a more expensive home.

Depending on the property and market conditions, you may be able to negotiate a seller concession that helps pay for a lower mortgage interest rate.

Rather than asking the seller to reduce the purchase price, you could ask them to contribute toward a mortgage rate buydown. This allows you to use part of the negotiated seller contribution toward eligible financing costs, subject to lender requirements.

How does a mortgage rate buydown work?

There are two common approaches.

Temporary rate buydown: A temporary buydown reduces your effective monthly payment during an introductory period.

For example, with a 2-1 buydown on a mortgage carrying a 7.25% note rate, the first year's principal and interest payment would be calculated using 5.25%. The second year's payment would be calculated using 6.25%. Beginning in the third year, you would make the full payment based on the 7.25% note rate.

The seller's contribution helps fund the difference between the reduced payments and the full contractual payment during those first two years.

Your actual mortgage note rate remains 7.25%, and you generally need to qualify based on the full payment.

Permanent rate buydown: The seller may contribute toward discount points paid at closing to reduce your mortgage interest rate for the life of the loan.

The cost of those points and the amount of the rate reduction depend on the lender, loan program, and available pricing.

Why might this be worth negotiating?

Let's say you're purchasing a $650,000 home.

Instead of asking the seller for a $10,000 price reduction, you might negotiate a $10,000 seller contribution toward eligible closing costs or a mortgage rate buydown.

A $10,000 reduction in the purchase price generally produces a relatively modest reduction in the monthly mortgage payment, particularly when you're financing only part of the purchase price.

Using that same amount toward an eligible rate buydown may provide greater monthly payment relief, especially during the first two years with a temporary buydown.

But there's an important distinction. A temporary buydown doesn't reduce your loan balance or permanently reduce the interest rate. It simply helps with payments during the introductory period.

A permanent buydown may offer longer-term savings, but we need to compare its upfront cost against how long you expect to keep the mortgage.

Seller concessions aren't guaranteed. They must be negotiated, must comply with the loan program's contribution limits, and must be approved by the lender. The property must also appraise sufficiently to support the agreed purchase price.

And I would never recommend buying a home based solely on the reduced introductory payment. You need to be comfortable with the full mortgage payment once the temporary buydown ends.

If you're selling too, the same question comes up from the other side of the table. Here's how I'd weigh a rate buydown against a price reduction when a buyer asks you for one.

What if you need to buy before selling your current home?

This is another concern I hear from homeowners considering a move-up purchase.

You find a home that checks most of your boxes, but a large portion of your money is tied up in your current property. You don't necessarily want to sell first and risk having nowhere to move.

There are several options worth discussing with a lender.

• Home equity line of credit: You may be able to access some of your existing equity before selling, subject to lender approval and repayment requirements.
• Bridge financing: Certain lenders offer short-term financing designed to help homeowners transition between properties.
• Qualifying for both homes: Depending on your income, debts, and available funds, you may qualify to purchase before selling.
• Home sale contingency: You may be able to make your purchase contingent on selling your existing home. Whether the seller accepts that arrangement depends on the circumstances and competition.

Each option has benefits, costs, and risks. I prefer to have buyers speak with a knowledgeable lender early so we understand their choices before they find a home they want to purchase.

Should you keep your current home as a rental instead?

Some homeowners consider keeping their existing property as a rental because they don't want to give up their low mortgage rate.

It can sound appealing. You retain the 3% loan, potentially collect rental income, and continue building equity over time.

But there are several things to consider before making that decision.

Rental income isn't the same as profit. You'll need to account for maintenance, repairs, vacancies, insurance, property taxes, and possibly property management expenses.

You'll also need to consider whether you can comfortably afford both homes if your rental sits vacant or needs a major repair.

And perhaps most importantly, keeping your current property means the equity tied up in that home generally won't be available as a down payment on your next purchase unless you arrange additional financing.

There may also be tax implications when converting a primary residence into a rental property, including how a future sale is treated. That's a conversation worth having with a qualified tax professional before deciding.

I'd recommend comparing the expected rental income, expenses, financing costs, and long-term implications against what you could accomplish by selling.

When might staying in your current home make more sense?

Sometimes staying is