Purchased my first house in March of 2021 when interest rates were as low as they could get. Only put 3% down on a $355k house at 2.75% fixed interest.
I recognize this is a good problem to have, but what’s the best advice on handling a mortgage with a low interest rate? My wife and I are planning for kids and will outgrow this property quickly and will want to move into a more family friendly location.
Is the best strategy to build up liquid assets to put 20% down on the next home and rent the low interest home to tenants? What other strategies do you recommend? Is selling the house worth it at any point?
2.75% Fixed Mortgage – Next purchase strategy
byu/Flight_Trainer_3064 inpersonalfinance
Posted by Flight_Trainer_3064
17 Comments
You got a steal. Nice job. Try to make it work as long as possible and build up the other parts of your finances (retirement accounts, investments, etc.)
The goal is to be financially crushing it once you outgrow the home.
What are similar houses near you selling for? And how much principal do you own?
I did the exact same thing with the exact same problem. If the house is a smaller house it may be worth it (When rates become lower) to pull some equity from the house for the down-payment on your new house and then keep the old house as a rental property. Depends on if you want to deal with the responsibilities of being a landlord. If you can collect enough rent to cover the payment and insurance then you’ll regain the equity you pulled out for your down-payment plus build equity in the home via rent payments. But a lot of variables would go into the decision of whether to continue to own it and rent it or sell and roll the gains into your new house.
How small is the house? I wish I had stayed in my smaller house. The kids could have shared a room
Can you look into renting it out? We are in a similar boat but have a co-op, which limits our ability to rent. Our total costs are under $3k a month, which is what we would probably rent it for if we could. Considering we pay over $1k in principal, it’s a good deal imo.
You can probably rent the house and cover the mortgage/maintenance at that rate. Keep the house and have someone else pay the mortgage.
OP you aren’t outgrowing that house for 5 years unless she’s carrying twins already! I’d build up after tax investments and down payment for the next place, then do the math when the time comes on renting vs selling. Being a landlord is a part time job, got my rental in 2013 and it was cash flow negative for a couple years. Now I get about 2k net (rents for $3,500) but I also have a tiny mortgage at 3%.
Sell the house buy another when you are ready to move.
I don’t details of your financial situation other then you dont have 20% down for you next house.
With the limited information you provide i see that you have had an amazing intrestrate rate on your current home and after 5 years of one of the best markets in a generation you still dont have enough to put a down payment of what 100k for your next home.
Low interest rates are great if you take the money you save and invest in the market but who knows?Maybe you’ve been maxing out your 401 k’s, your roths, and everything else and you just aren’t liquid.
You think you need a larger house. You don’t. We won’t soon see those low rates again. This is how financial hardship begins. One bad decision. This would be it.
I saved up a down payment on my next home and rented out my low mortgage one. It’s a no brainer for me because the money is borrowed at 2.375 against an asset that is basically taking care of itself in terms of cash flow.
I’m in the same position as you, OP. Basically waiting to pull the trigger on my next property until rates lower to anywhere in the 4s (and then I’ll probably buy down a point or so).
It may be a while of waiting. Buff up those savings and investment accounts as much as possible in the interim IMO.
The personal finance answer is to never sell. Make it work. If you must move the best strategy is to grow your income save cash and wait however many years it takes to the next recession to get a deal.
Similar situation with a slightly lower mortgage rate. House is 2 bed 1300sqft. I imagined it would be our starter home. Now 18 years later, one kis has already left and the other will be following in a couple of years. Ultimately we decided to invest more in the house and made it a little bit larger and added a second bathroom. Kids always shared a room. Would I like a slightly larger place with my own office, definitely, would I like to live in a nicer area, definitely, will I move? Probably never
Same boat here. Check what the rents are. We’re in CA and the rent is $750 higher than our mortgage. So we’re keeping the house and doing a 5-10% down on a new one.
We’ve decided we prob will never sell the house with a 2.75% mortgage.
You don’t need a bigger house when you have littles. The bigger house usually comes around kindergarten or when they’re not in the gotta keep them alive stage of early childhood.
I’d look into adding on an addition or finishing basement space if more square footage is needed. Learn to live with less – most people are happier in a smaller house than a larger space that requires more upkeep, cleaning, cost, etc.
If you are incapable of doing that – rent the house out and purchase another -but maker sure you can cover both mortgages in case you end up with a bad tenant or the market turns.
Just a thought, we renovation the house to add a 3rd bedroom.
It is a bit difficult to give you solid advice based on what you provided. Ideally, we would know your HHI, how stable that income is, what your bank accounts, HYSA and retirement funds are and anything else that would be helpful to estimate future cash flow.
What I can tell you is that kids are ultra expensive. Nobody prepares you for that. But any childcare is expensive, extracurricular activities…expensive. college savings, expensive. Actually sending them to college…expensive. kids driving a car? hard to overstate how expensive children are in 2026.
If I were you, I would try to hang on to your small home for as long as possible and upgrade around the time the kids get into middle school if you must. That way, you use the space for about 8 years but won’t need it for another decade. In the meantime, save, invest, invest for the kids college etc.