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If you got a mortgage in 2020 or 2021, you may have what seems like an unbeatable deal. But falling in love with your mortgage rate could be a bad life decision.
That’s what The Ramsey Show hosts John Delony and Ken Coleman told Lauren, of Detroit, Michigan, on a recent episode. She’s moving in with her husband after three years of marriage. He rents, while she owns a home with about $100,000 in equity and a 2.875% fixed mortgage rate (1).
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“Sell it today and put $100,000 down on a new house,” Delony said. “Who cares about that stupid interest rate, man. People are parking their whole lives on a once-in-a-millennium interest rate.”
“It’s just not worth it, that’s why we were so quick to just say ‘sell it and move on,’” added Coleman.
Building equity by charging market-rate rent on a super-low interest rate loan may seem like a good deal, but the devil, as always, is in the details.
Lauren and her husband are planning to live in a location that’s a two-hour drive away from her house, which would make her an absentee landlord. This means that every time a toilet overflows at her house, Lauren either has to drop everything to drive a four-hour round trip or hire a property manager. One takes time, and the other money.
Meanwhile, if her house payment isn’t far below the market rate for her rental, the profit she makes could get eaten up entirely by maintaining her property. Moreover, as a landlord, she has to deal with potential liability and legal hassles if her tenants are unhappy.
Assuming she can sell her property and clear $100,000 after paying off the remainder of her mortgage, she could put that cash toward buying a new property with her husband. Then they could build equity together rather than spending money on rent.
Yes, the interest rate on the new place will be higher than her current rate, but Delony and Coleman’s guidance is clear: Don’t freeze your life for a sub-3% rate.
And they’re not the only experts who say so.
Chris Heller, president of real estate portal Movoto, told CBS MoneyWatch about a family who gave up their 2.9% rate for a house in a top school district. Though the higher rate was a lot at first, the big-picture benefits made the trade worthwhile (2).
“Over time, the property’s appreciation offset the higher costs, and their children thrived academically,” Heller said, noting that the family plans to refinance when rates drop.
That squares with the real estate mantra frequently cited by Dave Ramsey: “Date the interest rate but marry the house (3).”
In other words, their advice is to focus on securing a desirable home rather than a rock-bottom rate — because rates can be reduced later through refinancing.
Lauren is in a similar position to millions of other Americans. Her 2.875% mortgage rate is far below today’s average 30-year fixed rate, which hovered around 6.37% in April, according to Freddie Mac (4).
To give that number some weight, consider that a $200,000 30-year loan at 2.875% would put Lauren’s monthly payment at roughly $830. Meanwhile, at 6.37%, she would pay about $1,247, which is $417 more per month.
That gap creates a powerful “lock-in” effect — especially looking at savings over a year.
Federal housing researchers found that when market rates exceed a homeowner’s original rate by one percentage point, the chance of that home getting sold falls by about 18%. Consequently, the low rate lock-in effect has meaningfully reduced sales since 2022, according to the Federal Housing Finance Agency (5).
And according to Gov. Adriana D. Kugler of the Federal Reserve, higher mortgage rates reduce purchases by lower-income and younger buyers, contributing to weaker homeownership for those under 45 (6).
If Lauren decides not to buy a new home, and that being a landlord isn’t for her, another way to easily tap into liquidity is through a Home Equity Line of Credit (HELOC). This is a revolving line of credit that leverages the equity in your home as collateral so you can borrow and repay funds as needed — similar to a credit card.
AmeriSave offers a flexible HELOC that lets homeowners borrow against their equity as needed during a draw period, making it potentially useful for renovations or debt consolidation. The application is mostly online and available in most states.
HELOCs can be a good fit for borrowers who want convenience and flexibility rather than a large lump-sum loan up front. You can draw funds only when you need them, which may be helpful for ongoing or unpredictable costs. Interest is charged only on what you use, and you repay the balance over time. It’s essentially a flexible credit line secured by your home, delivered through a mostly online application process.
While a rock-bottom mortgage rate is a strong incentive to hold, it isn’t always a good reason to derail your family plan.
To figure this out, Lauren can start by verifying today’s market rent using at least three comparable listings or recent leases to see what the property could realistically earn.
Next, she could outline every cost of ownership, including mortgage payments, property taxes, insurance and a repair reserve equal to about 1% of the home’s value each year.
To get her head around this number, Lauren could use a budgeting app like Monarch Money to help track her payments.
Monarch Money’s expense tracking system makes managing your finances easier. The platform seamlessly connects all your accounts in one place, giving you a clear view of your spending as well as your investments.
And, for a limited time, you can get 50% off your first year with the code WISE50.
Once these numbers are clear, Lauren can calculate whether the rental would generate meaningful positive cash flow. If the figure hovers near the break-even mark, that’s usually a strong sign that it makes more sense to sell.
Beyond the math, Lauren should consider the hassle factor. If the stress of managing tenants, maintenance and vacancies outweighs the potential reward, that needs to be part of the calculation. An easy way to do this is to apply her hourly rate to that four-hour round trip — plus the price of gas, which has risen to more than $4 per gallon on average since the start of the war in Iran (7).
Finally, if selling seems more practical, Lauren can estimate how much money she would walk away with after paying off the mortgage, covering agent commissions and handling any taxes.
Once she knows the net proceeds, she can put that money to work in a joint budget with her spouse so every dollar has a clear purpose.
When buying a new home, Lauren should make sure she gets the most competitive mortgage rate possible. It won’t come close to the rate she locked in years ago, but it’s still worth ensuring she and her husband try to get the best deal they can.
To help cut through the noise, Mortgage Research Center can offer you tools to compare mortgage rates, whether you’re looking to buy or refinance.
They can help you quickly compare rates and estimated monthly payments across multiple vetted mortgage lenders. By entering basic details — such as your zip code, property type, price range and annual income — you can view mortgage offers tailored to your needs and shop with confidence.
Once you choose your lender, you can even set up a free, no-obligation consultation to make sure you’ve found the right fit.
While a 2.875% mortgage rate is great, it shouldn’t be the sole reason to delay your marriage’s financial plan. The data shows that low fixed rates make homeowners reluctant to move, and that reluctance can stall bigger goals.
If you’re struggling to find your own financial future, it may be helpful to speak with a financial advisor to sort out your goals — but you need to find someone you can trust.
That’s where Advisor.com can come in. They do the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, who are legally required to act in your best interests.
Just enter a few details about your finances, and Advisor.com’s AI-powered matching tool will connect you with a qualified expert suited to your needs. From there, you can book a free call with no obligation to hire to make sure they’re the right fit — they might even be able to tell you whether a HELOC makes sense for you and your situation.
Regardless, as Delony and Coleman pointed out, the rental math has to be spectacular to make it worth the cost.
To keep life simple and moving forward, the better choice for Lauren may be to bank the equity, unify her finances with her husband’s and make a decision that serves her life rather than her enviable interest rate.
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We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Ramsey Show/ YouTube (1); CBS News (2); Ramsey Solutions (3); Freddie Mac (4); Federal Housing Finance Agency (5); Federal Reserve (6); AAA (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.