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Today’s real estate market has many homeowners feeling stuck. With 30-year mortgage rates currently averaging about 7%, homeowners who secured rates closer to 3% during the pandemic are hesitant to sell their homes. This reluctance to lose their low mortgage rates has created an unusual housing market.
Life’s major decisions rarely align with ideal market conditions, however. While giving up a low rate might seem unthinkable, mortgage professionals say there are several scenarios in which trading that rate for a new home can be smart.
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Here’s when homeowners should give up their low mortgage rate to buy a new home, according to experts
“There are plenty of good reasons to give up your lower mortgage rate to buy a new home — even if you’re [in the majority] of Americans holding a rate below 5%,” says Debbie Calixto, loanDepot’s sales manager.
Understanding these scenarios can help you decide to hold or fold your low home loan rate:
Scenario 1: Your family’s circumstances are changing
Life changes often spark the need for a new home. For example, Calixto points out that growing families might need extra bedrooms or bigger yards. Others might want better schools or shorter commutes. These quality-of-life improvements can make the switch to a higher rate worthwhile.
Chris Heller, president of Movoto.com, recently worked with a family who traded their 2.9% rate for a home in a top school district. While the higher rate stretched their budget initially, the long-term benefits were invaluable.
“Over time, the property’s appreciation offset the higher costs, and their children thrived academically,” Heller explains. The family plans to refinance when rates drop.
Marriage, divorce or health issues might also call for a move. These transitions often require quick decisions that can’t wait for perfect market conditions. In these circumstances, the right move gives emotional and practical benefits that outweigh the cost of a higher mortgage rate.
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Scenario 2: You need to downsize
Empty nesters often find that a smaller home’s lower maintenance and energy costs offset the increase in monthly payments. These savings, plus the proceeds from selling a larger home, can improve overall financial flexibility.
Heller recalls working with a retired couple who traded their suburban home for a more efficient condo.
“[They prioritized] convenience over their old low rate,” Heller says, highlighting how lifestyle benefits can outweigh rate considerations.
Physical needs also drive downsizing decisions. As you get older, you may find multi-story homes become impractical. Some of Calixto’s clients choose single-story homes with aging-in-place features, even if it means taking on a higher rate. These accessible designs help them maintain their independence while preparing for future needs.
Scenario 3: There’s a builder incentive worth taking advantage of
Many builders offer attractive perks such as home upgrades, closing cost credits and temporary rate buydowns to make relocations viable in a high-rate environment.
“31% to 33% of homebuilders have been cutting prices every month since July 2024, with reductions of 5% to 6%,” says Jeff Taylor, a board member of the Mortgage Bankers Association and managing director at Mphasis Digital Risk.
Even more compelling, about 60% of builders now offer some form of buyer incentive.
Scenario 4: You must go where your career takes you
A promising promotion or dream job might take you to a new city where you can no longer hold onto your old mortgage rate.
One of Heller’s clients faced this exact situation. They traded a 2.75% rate for one at 6% to accept an out-of-state promotion.
“The higher salary and long-term career benefits made the move a sound choice,” he says.
The increased income more than covered the higher monthly payments.
When to hold onto your low mortgage rate instead
At times, keeping your low rate makes more sense. For instance, Calixto once worked with a family who wanted to move to a new neighborhood. Despite having substantial equity for a down payment, the higher interest rate and property taxes would’ve strained their budget.
“Affordability should always be your top consideration — no matter how compelling the reasons [are] to move,” she says.
Heller and Taylor agree that homeowners should think twice if a move would stretch their budgets too thin. If your home meets your needs and your motivation to move isn’t urgent, keeping that low rate might be the wisest decision.
The bottom line
Trading a low mortgage rate for a new home isn’t a decision to make lightly.
“Start by understanding your finances, including the equity in your current home and your budget for the next purchase,” says Heller.
Once you know where you stand, meet with several lenders to explore pre-approval options, adjustable rate mortgages (ARMs) and rate buydowns for potentially below-average mortgage interest rates. From there, a local real estate agent can guide you through current market conditions and available incentives.
