Many homeowners who locked in sub-3% mortgage rates in 2020 or 2021 don’t want to move and risk taking on a much higher rate when they buy a different house. Some are perfectly happy to stay where they are — but others feel trapped by their low mortgage rate.
Take Chloe (32) and Jake (30). The couple found themselves in exactly this predicament when they appeared on Ramit Sethi’s podcast.
Ramit Sethi is a finance personality and best-selling author of “I Will Teach You to Be Rich.” Now, he hosts the podcast “Money for Couples,” where he helps couples work through financial issues.
In his Nov. 3 episode, he spoke to Chloe and Jake, who had locked in a 2.7% mortgage rate at the end of 2020.
But there was a problem: After buying the house, the couple realized they hated living there. And because they had such a low interest rate, they felt trapped.
“We know we want something different but seem unable to decide how to make that happen,” they wrote to Sethi before the show.
Why Jake and Chloe wanted to sell despite their 2.7% mortgage rate
Originally, the couple’s home-buying budget was $500,000. But they ended up buying the house for around $595,000. (Paying over asking wasn’t uncommon for those buying in the competitive housing market of the early 2020s.)
Although their mortgage rate was low, they had stretched their budget to buy the house. The larger property also came with ongoing expenses that made homeownership more financially and physically demanding than they’d anticipated.
Read more: Dave Ramsey sounds alarm on a risky home-buying decision
“I’m tired of spending money on things that don’t matter to me, which I feel like this house is,” Chloe said.
Still, even though Jake wanted to sell, Chloe was reluctant because she knew the 2.7% mortgage rate was a great deal.
The couple also spent considerable money trying to create the lifestyle they wanted outside of traditional homeownership.
They took out an $80,000 home equity loan to renovate the house so they could list it on Airbnb. They also bought an RV and a truck to pull the RV. Only later did they find out they didn’t live in a good Airbnb market, and their plan to list it and travel in an RV fell flat.
It didn’t take long for it to become clear to Sethi that Chloe and Jake didn’t buy because they wanted to settle down and become homeowners. They mainly bought because they felt like they were supposed to become homeowners.
What Ramit Sethi told the couple about selling their house
Ramit validates them for both having good points. Chloe doesn’t want to make a financial mistake by giving up a good mortgage rate and an appreciating asset, but Jake thinks they could sell the house and invest the proceeds in the stock market, where the money can also grow.
“Is there one decision that’s probably going to make you more money? Yeah,” Ramit told the couple. “But we don’t only make decisions because of money. What I’m more interested in is: What is your individual and joint vision of a rich life? Because that makes things very, very clear.”
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Chloe’s vision of a rich life included spending money on things she actually enjoyed, such as a nice gym membership, rather than landscaping and maintaining a property. She also wanted more freedom to travel.
Jake had similar priorities. He wanted to leave his demanding job, where he worked 50 to 75 hours per week, and create a more flexible lifestyle.
Sethi said they’ve been thinking more about what is financially responsible and not enough about what they want out of life.
They tossed around ideas about how to design a life they enjoy, regardless of whether they sell the house. They discussed options such as hiring someone to handle lawn care, setting aside more money for vacations, and putting more money toward things they actually enjoyed.
Chloe and Jake followed up with Sethi to tell him that after their conversation, they had decided to sell their house and move to the West Coast, where they could live the lifestyle they wanted.
What Ramit Sethi wants homeowners with low mortgage rates to understand
Ramit’s overall message wasn’t that people should sell their homes just because they dislike aspects like landscaping or home maintenance. It was that people shouldn’t stay in a house just because it seems like the “right” or “smart” thing to do if they’re ultimately unhappy there.
Chloe and Jake had relatively high incomes and had already built a solid investment portfolio, giving them more financial flexibility than many homeowners. Their circumstances made it easier to consider selling without jeopardizing their overall financial security.
Not everyone has their level of privilege or flexibility. But Ramit’s underlying question is valuable for anyone who feels trapped in their current home because they have a super-low mortgage rate:
If you weren’t worried about what other people thought was financially smart, would you still choose to live in your current house?
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