Next up, we have a question from Alan. We get this one a lot. He says, "What should we consider when looking at a new house? It's hard to stomach interest rates right now when our current home is at 2.75 percent. A new home would be two and a half to three times our mortgage. Should we empty our Roth IRAs for more money down?"
Bo, just, he just about... like, I don't even know what happened to him. He physically reacted to it. I don't even want to answer the second part of that question, but let's answer the first part. I mean, with the first one, I get, yeah, where people can get into that mindset, right? Like, well, the only way to do it's going to be to blow up the plan. Well, me and Brian have thought about this a lot, you know, in the past couple of years. A lot of people trade up homes, especially if you live in an area where the value of homes increase substantially, like the area that we live right in the suburbs of Nashville. Home prices just went through the roof here, like they got super expensive. If you know, homeowners saw huge increases in their property values, and I think that's a common thread across a lot of parts of the country.
Well, me and Brian have had this conversation around with where interest rates were, right? Two and a half, two and three quarters, three percent, and people making the decision to upgrade, making the decision to switch homes. A lot of people probably got locked in, right? So now, not only when you're thinking about buying a new home, are you facing increased prices just because the real estate market, in general, has gone up, interest rates have made the cost of ownership if you're borrowing significantly more expensive. So, it becomes really, really difficult when you think through it. But Alan's question was, okay, well, how? What are the... because that's the math, right? Interest rates and value of home and that kind of stuff. What are the things you want to think about?
The very first one that I'm going to throw out is the "why," right? And this is... I'm stealing this from Brian because I know he's a big "why" guy. The "why," if I am thinking about upgrading my house, why am I doing it? Is it because I just... I want something nicer? Is it because I've gotten tired of my old house? Is it because I saw somebody else get a new house? Is it because I'm just getting bored in my current circumstance? Or is it, hey, you know what, I want to expand my family, or I need to get a better job, or I need to shrink my commute, or I need to... you know, you fill that out and you basically do your T column with the here's all the reasons why, here's all the pros, and with each one of those, there's gonna be a cost, higher interest rate, larger mortgage, more expensive house, you know, fill in the blank, and you have to kind of measure those, too.
And then you have to step back and you have to think through the goals paradigm because money is nothing more than a tool that allows you to achieve your goals. You have to define what your goals are. If your goals are financial independence, then that will drive you in one direction. If your goal is, hey, I want to have a house where I can grow a family, and I want to be able to entertain people, and I want to be able to have community stuff, and I want to be able... you know, fill in those... well, if those are some of your goals, I don't think there's anything wrong with prioritizing moving towards those, but you need to understand the cost, opportunity cost associated with doing that. Alan, I wrote down three big things. First, welcome to the gilded cage age. In the fact that you have a 2.75 mortgage rate, it is hard to walk away from that rate. Um, and I think there are going to be so many people... this is something I don't hear reported a ton about the housing market, is there's gonna be a whole group of people, by the way, that now all the people because I have over here on the content team, crash. They're over here like, these son of a gun. So, you know how are they even complaining about upgrading when they have a 2.7 and they're in a house. But I think that this is... this is the hard thing about the housing market right now, is that if you have a low rate, it's hard to walk away from that low rate because you don't know that these rates are ever coming back. So you feel like you're... you're there. And then you also know when you upgrade, wowzer, who wants to pay 6 or 7 percent, as you said by your own um, setup here, that your costs would go up two and a half to three times your current. So, that leads to my next point. This better be a need, not a want, because at those types of pricing models, um, this is something where it's like, wow, you know, you really are making a huge decision here if you're talking about a 250 to 300 percent, three-fold, a price increase on your housing. This better be a need, not a want, um, because if it's just for convenience or because you want a bigger pantry or you want a bigger payment, yeah, there's just something there. But you better make sure this lines up. And then I would have, that leads to my third point, is that you better have the income and the emergency reserves to where when you look at your housing costs compared to your income, and this better not even be close to 25. This ought to be something where you've gotten, like, welcome to the big pay raise, or you're, you're, you know, whatever you invented has come home to roost and you now have cash flow just dumping into where now it doesn't matter that you're walking away from the 2.75. This better be a really no-brainer to make that decision. And at no point in this, by the way, this is why I know you didn't invent something and you didn't patent it, is because you're trying to make desperate decisions that could you in the long term, you're taking, uh, you're taking a permanent thing, you know, the short-term problem, and giving it a permanent solution. And the fact that if you get into those Roth assets, your 50-year-old self and 55 and 60-year-old will be like, "What the heck was I thinking? What was I thinking taking Roth assets? I had a 2.75 mortgage, and then I took Roth assets. Man, I, I turned a win of a life into a pickle of a situation." Just be careful. I know that makes me probably seem like I'm yelling at you from the front porch, but it is one of those things where I think that it is... you better go through all the variables because you... you just have some really positive things there. For more information, check out our free resources