Nov 17, 2024
Owning a home with an affordable mortgage may seem like a dream, but for many Americans, it’s starting to feel like a trap.
According to an Edelman Financial report, half of homeowners under 50 feel trapped in their current homes. Financial constraints are a key factor: 25% say they can’t afford to move, while 21% believe they couldn't afford a new home they'd want to live in.
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Rising interest rates are a big issue. Many homeowners obtained mortgages when rates were below 4%, but with current rates hovering above 6%, moving could mean a significant increase in housing costs.
The desire to relocate is strong. Over 40% of Americans — and 56% of those in their 30s — say they’d consider moving out of state to save on housing costs. Yet, with low interest rates unlikely to return anytime soon, this may not be an option.
If you’re feeling stuck, here are three strategies that could help.
Use equity to buy down your rate
If high borrowing costs make homeownership feel out of reach, consider using your home equity to lower your interest rate.
Home prices have soared nationwide, rising 47.1% since early 2020, meaning many homeowners could sell their property for a generous profit. By using that profit for a larger down payment and purchasing pay points, you can bring down your interest rate.
Points cost 1% of your loan amount and typically lower your rate by 0.25%. Combining a bigger down payment with points could make moving more affordable, especially if you're relocating to an area with lower housing prices.
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Consider renting temporarily
Selling your home doesn’t mean you have to buy another right away. Renting can be a practical interim solution, especially since rent prices, though rising, haven't soared as much as housing costs in many areas.
Some cities still offer rental options that are cheaper than buying a house, allowing you to wait for interest rates to fall. The Federal Reserve has hinted at potential rate cuts through 2025, so renting could position you for a better mortgage deal down the line.
Explore assumable mortgages
Although the days of 3% and 4% interest rates are behind us, there is a loophole you might consider: assumable mortgages.
Certain government-backed loans, like FHA, VA and USDA loans, allow buyers to assume the seller’s existing mortgage, including its lower interest rate.
While this approach narrows your housing options, requires more paperwork and obligates you to pay the sellers for their equity, it could help you to recapture a great rate.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Take control of your situation
Feeling trapped by your mortgage doesn’t have to be permanent. Whether leveraging equity, renting or exploring unique financing options, there are ways to regain control. Evaluate your circumstances, explore these strategies and take the first step toward your next chapter.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
