A real estate agent shared her personal experience with the golden handcuff effect on your mortgage.
While this leaves many homeowners feeling trapped, it has offered buyers a way out.
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Brígida Thomas (@bridgetsellshouses) is a content creator and real estate agent from LaCrosse, Wisconsin – about 140 miles from Madison.
On a TikTok video last summer, the real estate agent shared how the golden handcuff effect impacted her own experience with homeownership.
She explained how she purchased her current home in 2018 with a low interest rate of less than 3%.
Thomas herself experienced the golden handcuff effect and understood how difficult it could make change for homeowners.
Due to the low interest rate at which some buyers purchased their homes, the prospect of a rise in interest on a new property can seem daunting.
Some buyers may have purchased their home five or six years ago at a low interest rate, but their lives have changed significantly since then.
What are golden handcuffs?
Golden handcuffs refer to situations where homebuyers have secured a mortgage at a low interest rate, making their current home loan advantageous.
Because the interest rate is so favorable, these homeowners are reluctant to move.
The term highlights how the attractive financial terms of their current mortgage create an incentive to stay, effectively locking them into their current home.
The real estate agent gave several examples, including people who had children or had children leave home.
Other homeowners may have experienced an aging parent moving, a substantial change in income, or a desire to live in a different school district.
PROFESSIONAL ADVICE
She offered advice to those who felt trapped by their mortgages.
“I know people will say I’m biased, but an interest rate does not determine or harm your success as a real estate investor – and anyone who owns a home is a real estate investor,” Thomas began.
She highlighted that homeowners can refinance, consider different types of mortgages and apply for different types of loans.
“The rate is just an arbitrary number,” she said.
Thomas explained how if a homeowner wants to move house and has a lot of equity in their current home, they can make a larger down payment on their next home.
This means their mortgage principal wouldn’t be much higher than it is today or could even be lower depending on how much equity they have built up in their home.
“You may be charged interest on the smaller principal balance, which in effect means it could be equivalent to what you are paying today to move house,” Thomas said.
She advised those in a similar situation to talk to a real estate agent or lender.
“Don’t make assumptions because there may be some really good opportunities for you that you don’t want to miss,” she said.
Many other owners felt trapped by the golden handcuffs.
A couple bought their 5,000-square-foot home with pool 10 years ago — now they’re mortgage prisoners.
Another homeowner “doesn’t see a viable path forward” after purchasing an “out of reach” three-bedroom home.
This story originally appeared on The-sun.com read the full story
