Our dreams of trading up to a bigger home are now dead, which means I'll probably die in my 1,800-square-foot starter home. Since interest rates started climbing, I've given up the idea of living within a gated community in a custom home with a freeform pool and cascading waterfall. I never needed a McMansion, but two stories and an extra 1,000 square feet would have been nice.
Rising mortgage rates were essentially the third strike for us and now we are out of the trade-up market. For us, the first strike was being stuck in our starter home due to the housing crisis. We were underwater on our mortgage, which meant we had negative equity in our home. The second strike was the decision to refinance after we finally had equity in our home again. After paying all the closing costs associated with refinancing, we can't afford to move anytime in the near future.
According to a recent article by CNNMoney, home buyers can now say farewell to ultra low mortgage rates. Experts expect rates to continue to climb.
Landing an ultra low rate
When we refinanced earlier this year, we landed a 2.75 percent interest rate on a 15-year fixed mortgage. However, the tradeoff was committing to stay in our home for at least another 5 years. We assumed rates would stay low when we were ready to move up the housing ladder and into a 3,000-square-foot home with balcony and sweeping views of our large lot in 5 to 7 years. Any money we saved by refinancing to a lower rate would be lost if we put our home on the market now and had to pay closing costs all over again.
Paying a lot more to upgrade
According to an article by CNBC, rising mortgage rates may trap the move-up buyer and cause trouble for the trade-up market. Someone who imagines trading up to a $500,000 home in a few years will have to pay a much higher mortgage payment if interest rates continue to rise. It would be great if I could keep my 2.75 percent interest rate, but unfortunately mortgage rates are not transferrable when a person buys a new house. It's not likely my husband and I would trade our $900 monthly mortgage payment for a $2,300 payment or higher. If we upgraded today to a $331,000 new house with 2,800-square feet, that's what we would pay.
Skipping to retirement
My husband and I won't have to downsize when we retire in 25 years since we never moved into a step-up home. Our one-story starter home is the right size for our retirement years. We are located within walking distance to grocery stores, restaurants and a hospital. Instead of worrying about how much equity we will have in our home by the time we retire, we concentrate on paying off our mortgage. We will be happy to enter retirement without a mortgage to pay.
When I first considered buying a home, I should have gone into it with the attitude that it may end up being the last home I ever buy. It just never dawned on me that it might never make financial sense to move again.
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