If you want to sell your home, you need a buyer. When interest rates are low, more potential buyers qualify for mortgage loans. The low interest rates mean low monthly payments. Every time there is an interest rate increase, a number of buyers no longer qualify. Others now qualify only for lower loan amounts. Unlike a business, you cannot increase productivity. The only thing you can do to sell is to reduce your asking price.
Example: If your home is worth $200,000 with interest rates at 5%, it may only sell for $150,000 if rates go to 8%. If you still owe $180,000 on your mortgage, you can see the problem that you face. Since the interest rate is higher, the buyer is not really getting a bargain if you do sell at the lower price.
Fortunately, real estate is called a self-correcting asset. If you bought Enron stock for $100 per share, you have lost your money no matter how long you hold the worthless shares. If you paid $200,000 for your home and it is now worth $150,000, do not worry; if you hold it long enough, it will eventually increase in value and could be worth $250,000 some day. The question of how long you will have to hold it for the value of the house to go back up is the unpredictable part.
As discussed, many of the decisions regarding mortgages should be based on how long you keep the loan. How long you plan to stay in your home should be decided before you start your mortgage shopping. Only about 5% of thirty-year mortgages are paid off in thirty years. Since you cannot depend on favorable interest rates for refinancing, your plan should be based on how long you plan to stay in your home before selling. Then you get the loan best suited to your five-, ten-, fifteen-, or twenty-year (or longer) plan.