Should You Sell Your House if You Have a Low Interest Mortgage Payment?

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

High interest rates and high home prices is a tough combo for most.  

When we moved last summer, we traded a low interest rate for one 2.25% higher — and we were lucky. We got into our new home just before rates went up again. Between the higher interest rate and steeper property taxes in our new city, our monthly mortgage payment increased by $1,000. If we didn’t have to leave for a new job in another state, I would never have sold the old house.

But that’s me. There’s no one-size-fits-all answer that makes sense for everyone. The best decision depends on several factors. Let’s take a closer look.

Do you need to move?

If you or someone in your household is ill or has lost a job, you may have trouble paying your mortgage. If that’s the case, selling while prices are high and renting until your situation changes can make sense.

If you need to sell your home to take a job across the country or to be closer to aging parents, you can make it work. You have to do what’s right for you.

My husband and I once sold a home to pay for graduate school while everyone in our lives thought we’d lost our ever-loving minds. Still, it was the right move for us.

Are you planning to buy another home?

I’ve noticed over the past few years how many people I know are planning for a less-traditional retirement. They want to move into a cabin they’ve been building in the woods or live on a boat and sail the Caribbean for a few years. Several of our friends see selling their current homes and moving on to other adventures as freedom. If that’s the case for you, 2023 is a great year to sell.

However, you may want to wait if you’re considering selling and immediately shopping for a new home. In addition to trading a low interest rate for a higher rate, you’ll be walking into a housing market that looks very little like it did several years ago.

Currently, home prices are mixed (more on this in a moment), but it’s safe to say that you could sell your home and pay much more than anticipated for another house. The national median sale price of an existing home at the end of January 2020 was $266,300. By the end of February 2023, the median home price of an existing home had catapulted to $363,000.

Unless you don’t plan to buy a home immediately after selling, carefully consider how much you can afford to pay and still live the life you want.

Are you overly optimistic?

We’ve spent the last couple of years hearing that buyers are willing to pay anything to get into a home, and admittedly, we earned far more on the house we sold last year than expected. Still, nothing — including the housing market — remains static. Everything changes.

We rarely heard of home sellers dropping their prices in the heart of the pandemic and lockdowns. However, depending on where you live, you could be overestimating how much money you’ll make. As early as last summer, homeowners in cities like Boise, Denver, Tacoma, and Sacramento were forced to reduce the price of their homes to sell them.

Before making a final decision, meet with a real estate agent to learn about recent sales of comparable homes in your area. If it’s not enough to fund your next dream or get you into another home you can afford, consider postponing.

How long have you been in your current home?

If you don’t need to move and were fortunate enough to buy or refinance while rates were at historic lows, leaving now may not be your best bet. This is especially true if you haven’t been in the home long.

Let’s say you purchased your home in late 2019, and after a 20% down payment, you owe $250,000. Area homes are currently selling for $350,000. One glance at those numbers, and it looks like you’d make a cool $100,000 if you sold. However, a more realistic way to estimate your windfall is to subtract the cost of selling the home and the money you’ve put into upgrades and repairs.

It typically costs 10% to 15% to sell a home, with 5% to 6% going to the real estate agents and the rest going toward getting the home ready for sale and closing costs. Since it’s still a seller’s market, let’s assume you spend at most 10%.

If the property sells for $350,000, you must shave $35,000 off the top. And for the sake of illustration, let’s assume that you’ve put $15,000 into the house since moving in, on everything from a new water heater to landscaping. That money must also be deducted from your proceeds.

Now, instead of walking away with a cool $100,000, you’re left with $50,000. And that’s fine, as long as it’s enough to cover your next move.

Are you okay with a higher interest rate?

Some people live so far below their means that they can afford a more expensive house and a higher interest rate. If that describes your situation, you can afford to do whatever you want this year.

If that’s not your current situation, think twice before giving up an interest rate that provides breathing room in your budget.

As mentioned, there is no one-size-fits-all answer. Whether 2023 is a good year to sell your home boils down to your specific situation and what you hope to do next. One way to make the final decision is to calculate how much you can realistically afford to pay for your next home. If the numbers fit and you’ll walk away from a sale with the money you need to make it happen, the decision becomes much easier.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

 Read More