Thinking about selling your house, but reluctant to give up your mortgage rate? You are not alone. Some homeowners hesitate to move because buying their next home could mean taking on a higher rate.
That concern deserves a careful look. But your mortgage rate is not the only part of the decision. The equity you have built in your current home may help make your next purchase more affordable.
The practical question is not simply, What rate would I get? It is also, How much would I need to borrow after using my equity? Looking at both questions gives you a more useful starting point.
What Home Equity Means
Home equity is the difference between what your house is worth and what you still owe on your mortgage. Bankrate explains:
“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”
Put simply, the calculation is:
Your home’s value minus your remaining mortgage balance equals your equity.
That definition points to two ways equity grows. You pay down the principal on your mortgage, and your home may increase in value. Both can contribute to the amount of equity you have when you are ready to sell.
If you have been focused mainly on your existing mortgage rate, take a moment to consider this other side of the picture. What you owe matters, but so does the value of the home you own.
Why Equity Deserves a Closer Look
The original article highlighted substantial equity among U.S. homeowners. It cited CoreLogic research reporting that the average U.S. homeowner had about $290,000 in equity.
It also cited data from the Federal Housing Finance Agency, the Census, and property data provider ATTOM showing that 68.7% of homeowners either owned their homes outright or had at least 50% equity. In round numbers, that is nearly 70% of homeowners.
These are the source figures reported in the original article, not a fresh measurement of homeowner equity. They provide context for the article’s central point: equity can be a substantial resource when planning a move.
The original explanation connected that equity growth to significant home-price increases, which helped equity accumulate faster than usual. It also described a market beginning to normalize while buyer demand still exceeded the supply of homes for sale, pushing prices upward again.
For an evergreen decision, focus on the relationship behind that explanation. Rising home values can build equity alongside mortgage principal payments. Rather than treating a national figure as your own starting point, work through the equity calculation for your property.
Two Ways Equity Can Help With Your Next Purchase
After selling your house, you can use the equity you have built to help buy your next home. The original article outlined two possibilities: buying without a mortgage or making a larger down payment.
Neither is a promise about what your situation will allow. They are options worth exploring before you decide that a higher mortgage rate makes moving out of reach.
1. Buy Your Next Home With Cash
If you have lived in your current home for a long time, you might have enough equity to purchase another house without taking out a loan.
If that is possible for your purchase, you would not need to borrow money for the home. Mortgage interest rates would no longer be a concern for that purchase because there would be no mortgage.
The National Association of Realtors made this point in the material cited by the original article, noting that all-cash buyers avoid higher mortgage interest rates.
The useful question is straightforward: Could the equity from your current home support an all-cash purchase of the home you want next? You do not have to assume the answer is yes. You simply need to explore whether this option fits your plans.
2. Make a Larger Down Payment
You do not need enough equity to buy with cash for it to help. You may be able to put that equity toward a larger down payment instead.
A larger down payment means you would need to borrow less money. That can make the mortgage rate less of a sticking point when considering your next home.
Experian explains another potential benefit:
“Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender.”
The important word is could. A larger down payment does not guarantee a lower rate. It does, however, reduce the principal amount you need to borrow for the same purchase.
Instead of looking at the rate alone, consider how much equity you could put down and how much borrowing would remain.
Put Your Own Numbers Into the Conversation
Start with your current home before focusing entirely on the next one. Use these questions to organize a discussion with a trusted real estate agent and Ed:
- What is my current home worth?
- How much do I still owe on my mortgage?
- How much equity does that leave?
- Could that equity support a cash purchase?
- If I need a mortgage, how much could I put toward the down payment?
You do not need to dismiss your concerns about a higher rate. You need to consider those concerns alongside the equity you have already built.
Your Next Step
Before deciding whether to stay or sell, get a clearer picture of your home’s value and remaining mortgage balance. Then explore how your equity could support your next purchase.
Ask a trusted real estate agent about your home’s value, and reach out to Ed Parcaut to talk through how that equity could fit into your next home financing plan.
