If you bought your home a few years ago and locked in a low interest rate — somewhere in the 2–3% range — you might feel like you won the mortgage lottery. But now, maybe your lifestyle has changed. You need more space, you want to downsize, or you’re relocating for work or family. Unfortunately, today’s mortgage rates have doubled, leaving many homeowners feeling trapped. This phenomenon is known as the “lock-in effect,” and it’s keeping inventory tight across the country — including right here in Rockford, Illinois and surrounding areas like Belvidere, Machesney Park, and Hoffman Estates.
The good news? You’re not completely stuck. There are creative ways to move on from your current home without throwing away the financial benefit of your low-interest mortgage. Let’s break down your best options.
1. Rent Out Your Current Home and Buy Another
Economist Jake Krimmel from Realtor.com calls it what it is: the lock-in effect. In a recent interview with Yahoo Finance, he explained how today’s higher rates are dramatically shifting seller behavior. “I’m locked in at 2.75%,” Krimmel said. “I’m moving to New York, but we’re going to rent our house out.”
Many Illinois homeowners are doing exactly that. Renting out your home can preserve your low mortgage and give you passive income — or at least help cover your payment while you buy a new place.
Keep in mind:
- You’ll need to qualify for a new mortgage while still holding the old one.
- Being a landlord comes with responsibilities, so consider hiring a property manager.
- Make sure local rental laws and zoning in places like Rockford or Belvidere allow it.
This strategy works well if your current property is in good shape and located in a strong rental market.
2. Use a Mortgage Recast to Lower Your Payment
Let’s say you don’t want to become a landlord, but you do want to buy a new home and reduce your monthly payment. A mortgage recast could be the answer. Here’s how it works:
- Buy your new home with a traditional mortgage.
- Sell your old home and use the proceeds to pay down your new loan.
- Ask your lender to “recast” the mortgage — they’ll recalculate your monthly payment based on the reduced balance.
Example: You buy a house for $450,000, putting 20% down. Your payment on a $360,000 loan at 6.5% is about $2,275/month. Once you sell your current home and apply $100,000 to the balance, your new payment drops to around $1,643/month.
Important: Not all lenders offer mortgage recasts, and most government loans (FHA, VA, USDA) don’t qualify. But conventional loans usually do.
3. Explore Assumable Mortgages
If you’re buying another home, look for one with an assumable mortgage. These are typically government-backed loans like FHA or VA loans that allow you to “take over” the seller’s low-interest mortgage.
Pros:
- Potentially get a 2–3% rate in today’s 6–7% market.
- No need to apply for a whole new mortgage.
Cons:
- They’re rare.
- You’ll need cash to cover the difference between the loan balance and the purchase price.
- Not all sellers or lenders are willing to go through the assumption process.
Still, it’s worth asking — especially in slower-moving markets like Rockford, where sellers may be more motivated.
4. Negotiate a Rate Buydown
Builders and some lenders are offering rate buydowns as a way to attract buyers. A buydown means the seller or lender pays upfront points to temporarily lower your mortgage rate — usually for the first 1–3 years.
This can help ease the transition into a higher-rate market, especially if you expect rates to drop or plan to refinance in the near future.
5. Consider the Bigger Picture: Lifestyle vs. Loan
Sometimes, the math doesn’t matter as much as your why. If you’re moving to be closer to family, need a safer neighborhood, or want a better school district — those reasons may outweigh your low rate.
Yes, your new loan might cost more. But your quality of life could improve significantly. Don’t make a purely financial decision if your personal needs have changed.
Also, keep in mind: you probably have equity. Thanks to rising home prices over the past few years, many Rockford-area homeowners are sitting on significant gains. That equity can help offset a higher mortgage rate, give you a strong down payment, or fund home improvements.
Want to learn more about how to sell a house with equity but without making repairs? Check out this post.
Final Thoughts
If you’re feeling trapped by your low mortgage rate but need to move, you have options. Whether it’s renting out your current home, recasting your new mortgage, or negotiating a buydown, the key is understanding what fits your situation.
At Modern Times Homes LLC, we help homeowners in Rockford, Belvidere, Hoffman Estates, and surrounding areas navigate complex real estate decisions — including those dealing with today’s rate lock-in dilemma. We buy homes as-is, offer flexible closing timelines, and can help you sell without hassle or delays.
📞 Call us at 815-974-0359 or visit ModernTimesHomes.com to request your free, no-pressure offer today.
Want to read more? Here’s our guide to selling inherited homes in Illinois.