Should I sell my home to pay off my debt?

Yesterday we had a great discussion about some of the financial choices I'm facing, but today it's time to look at a decision a GRS reader is trying to make. Catherine wrote to ask if it makes sense to sell her home so that she can become debt-free and have the freedom to pursue a simpler life:

I'm in my mid-forties, self-employed in a high-cost city where I live in a one-bedroom condo that I bought ten years ago. I have about $220,000 in equity in the condo (and about $132,000 left on the mortgage).

My mortgage is very affordable because I refinanced into a 30-year loan last year. Still, housing costs eat up about $1500 a month (and would be $400 more if not for the refinance). If I rented, I'd probably spend about that much for an apartment. As part of my housing costs, I pay over $500 each month toward the homeowners association, and there are a number of expensive building renovations looming on the horizon.

I haven't been putting more money towards the mortgage because now I'm obsessed with thoughts of selling my apartment and renting to give me more flexibility in pursuing a less stressful life. (My dream includes a small house in a lower-cost city, having a garden, etc.) I make a decent living, but I don't love what I do. On the other hand, I have no idea what I'd do if I switched careers.

Other than my mortgage, I have:

  • $2,000 in credit-card debt
  • $14,000 owed on a home-equity line of credit
  • Nearly $300,000 in retirement and investment accounts
  • $10,000 in an emergency fund and another $1500 in savings

If I sold the condo, I could pay off my debt, pocket a good chunk of change, and have more time to think about what I want to do with my life. Is it crazy to sell my home when I don't have my plans mapped out yet? It would be such a relief not to worry about the ever increasing condo fees and the repairs I'll need to make soon…

When I first read Catherine's e-mail, I thought she was asking whether she should sell her home to pay off her debt. But that's just a part of what's going on here. Catherine has $300,000 in retirement savings, $220,000 in home equity, and almost $12,000 in savings accounts. That's about $532,000 in assets to just $148,000 in liabilities. Not bad.

Still, I'd be cautious about rushing into anything. While I absolutely think Catherine should explore new careers, I think she should be patient as she does so. Here's my advice:

  • Don't make any sudden decisions. Take small steps, and test-drive choices. First, Catherine needs to decide what her long-term goals are. This can be tough. If she doesn't know what she wants to do ten years from now, she should do some self-reflection: Take time to see a career counselor, somebody who can guide you through your journey. (My friend Michael — the man who inspired Get Rich Slowly — has helped both me and Kris on our own career journeys. He's just started a career counseling blog.)
  • Consider the long-term housing market. Catherine could sell, but she should be aware that many experts expect home prices to recover some of their losses over the next few years. (Some of their losses, not all.) By waiting 24 or 36 months — during which time she could research potential futures — Catherine may find that she's able to get even more for her house. (Plus, if she's diligent, she may be able to pay off her $16,000 in debt.)
  • Don't rent — not yet. Catherine says that if she rented in her city, she'd probably pay about the same as her mortgage. But when she pays her mortgage, she's building additional equity in her home, something that renting wouldn't give her. I'm not a “you must own a home!” zealot — if fact, I think renting can be a great choice — but in this situation, I think Catherine is best served by staying in the house until she's made a definite decision to live elsewhere.

The more I think about it, the less this is a personal-finance question, and the more it's a question about personal values. It's yet another example of how money is more about mind than it is about math; no economist has yet constructed an equation that accounts for the decisions Catherine has to make!

Have you ever faced a choice like this? (Or do you know somebody who has?) What would you do if you were in a ho-hum job in a house you didn't care for, and had the opportunity to try something new? Should Catherine take a risk — make a leap of faith, sell her home, and move somewhere else? Should she just bite the bullet, stick with her job, and keep at what she's doing until she retires? What other options should she consider?

More about...Debt, Home & Garden

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Money Smarts Blog
Money Smarts Blog
10 years ago

If I sold the condo, I could pay off my debt, pocket a good chunk of change, and have more time to think about what I want to do with my life.

I’m not sure how selling the condo will give you more time to think about your life. Can you not think in the condo? 😉

I like JD’s advice – take your time. You need to come up with a plan.

Mike

ElCheapo
ElCheapo
10 years ago

Something doesn’t smell quite right here: #1) JD, your summary of her assets and liabilities is flawed. Her house is an asset worth $352k( $220k is equity and $132k is mortgage). So her assets are $664k and her net worth is $516k. #2) I’m not sure I trust her mortgage/rent comparison. If she owns 62% of a condo she bought in 2000 (before the housing bubble!) and if she’s refinanced in to a ~5% mortgage owning must be cheaper. In fact if her mortgage payments are $1000 and she has a 5% load on $132k then I’d guess she has… Read more »

Raghu Bilhana
Raghu Bilhana
10 years ago

Catherine I would say sell the house. The reasons are because 1) Most important being you say you are not happy where you are staying. 2) You said you wanted to pursue future opportunities in life, owning a house and having a debt payment on the house chains you to that particular location and does not allow to pursue something you love far away from where your house is. 3) You pay $500 every month in association fees, which is similar to throwing the money away. That is $6000 every year. Even on the positive side if you assume house… Read more »

Christina
Christina
10 years ago

Since renting is the same cost as the mortgage, I would stick with the house at least until you had a real idea of what you wanted next-why not build equity, and even though there are repairs looming, if they happen before you move, hopefully they would be a selling point. This could be a brief midlife “crisis” thinking period that fades, or you could figure out what you really want. I would take this time to try to pay off the debts you do have, and then either keep more for retirement as you may decide on a new… Read more »

Lyndsay
Lyndsay
10 years ago

Catherine, My guess is that you have thought long and hard about this and writing to ask for our two cents is one of your last steps – you aren’t jumping into anything! I’m with Raghu, what makes you happy is most important. It sounds like you may be considering a move on top of a career change as part of your bigger plan and if losing ties to your house makes you feel like that is possible then I say go for it. You have money to rent for a few months (wherever you are) to start pursuing your… Read more »

Kestra
Kestra
10 years ago

It doesn’t sound particularly financially risky to sell. If rent = mortgage, but you have the association fees on top of that the amount that you would lose every month is probably quite similar. If renting will make your life stress free and better able to plan your next step, I say go for it. I wouldn’t make many other decisions without a more specific plan in mind though. And if you have that much in savings, I’m surprised that you have that much in non-mortgage debt. Whatever you do, I’d get that paid off asap. I know you can’t… Read more »

Jennifer Ressmann
Jennifer Ressmann
10 years ago

To me it sounds like you need a vacation. Maybe some time to yourself to think and do some fun stuff. A change of scenery? Maybe you’re in a rut? But, don’t throw it all away. Maybe you can work more days into your life where you do more of those things that you love to do. Maybe these things could turn into a new career move? Sometimes when you feel this way you can act spontaneous in areas where you should stay put, just to shake it up. And, if you don’t mind – it looks like you’re at… Read more »

Nicole
Nicole
10 years ago

I thought she said she would be paying half what she’s paying now if she rented? I don’t think she needs to know what she wants to do before she sells. She wants more flexibility. How flexible she can be may be determined by whether or not she can unload the house. We’ve got friends who needed a sudden career change and had to move, but because they cannot sell their house, they’re living with family/friends in the new city (and apart from each other), which is not ideal. If the work situation hadn’t been so bad and the (educational)… Read more »

fantasma
fantasma
10 years ago

Pay off the debts outside of your mortgage.

Rent the condo. Try out what you think you want to do. Move to a smaller city, grow vegetables.

There are plots in cities where you can actually grow gardens and such, look for one in your city.

You think you’d like to live a simpler life, I say try it before you go for it.

Coley
Coley
10 years ago

The real estate market must be right around the bottom now when middle-class professionals who currently own their residences with significant equity and can comfortably pay the remaining mortgage are, for no clear reason whatsoever, contemplating selling to become renters. My, what a shift in philosophies we’ve seen! Anyway, to this specific question, I don’t see any reason to make a decision about this before you have an idea what you want to do professionally, and then where you might want to live. I, too, agree, that renting can be a very attractive option depending on one’s circumstances, but there… Read more »

Stephan
Stephan
10 years ago

sell the house, pay of your debt, and downsize. i think this person just needs someone to nudge them along. the condo fees are outrageous and eat up alot of your money each year and since you have all that equity i would use it once you sold the home for better things such as becoming debt free and having the funds to start whatever new career you decide on pursueing!

Jan
Jan
10 years ago

Go ahead and attempt to sell. It may take a number of months. The looming condo fees for the major repairs is why I say put it on the market. Those repairs are costly- sometimes several thousand assessed- even if your particular condo could go without. My mom’s street got repaved and her part of the bill was a whopper! I see the same happening in the property tax market as well. Ours is going up $200 every $1000 next year- mostly because of default finally hitting the system. Just because you are renting means you have to change jobs!… Read more »

Rich
Rich
10 years ago

First of all, overall I’d say you are doing great!! Good work! First thing I would do is pay off the credit card debt immediately with the emergency fund. I could be wrong (and would love to hear from others if I am!), but I don’t understand the value in having credit card debt and an emergency fund and a home equity line of credit (HELOC from here on). If you don’t want to touch the emergency fund then I would certainly pay off the CC debt with the HELOC. The interest rate on the HELOC should be many times… Read more »

Passiivinen Sijoittaja
Passiivinen Sijoittaja
10 years ago

Well, since you said you could rent for half the price you’re paying for the condo, I think selling is an good option. You could always invest the money you save in housing expenses to offset what you lose in home equity.

Jessica
Jessica
10 years ago

I think we put our lives on hold because we are afraid of taking risk. Do I agree with JD, yes, I do. If you are unsure about what you want to do as a career, then I say wait it out. If you knew exactly what you wanted then I say go for it. Only you can make that decision and no one else. I wish you the best of luck.

Jo
Jo
10 years ago

This is a great question – we are facing something similar.

If I may – we are considering selling our 2400sq ft house and downsizing to a 800-1200 sq ft home (we have 2 small kids). It would result is us being completely debt free or owing very little on a mortgage. It may sound crazy but it is the freedom it would give us that is so appealing.

I vote for simplification!

ElCheapo
ElCheapo
10 years ago

I should add that if she has some life goals she wants to pursue and that involve selling her condo, then she should do that. But if she’s seriously worried about her finances then: 1) Based on my earlier post, she will be saving more money by owning than renting and by about $500/month. I believe she was ignoring the significant principal payments she is making on a 15 year mortgage. 2) If cash flow is a problem, she could refinance (again!) to a 30 year mortgage and gain $300-400/month in cash flow (at the risk of reaching retirement age… Read more »

J.D. Roth
J.D. Roth
10 years ago

I’m not sure where some readers are seeing that she’d pay half as much to rent. Catherine says it would cost about the same to rent, doesn’t she? Am I going senile? 🙂

lovinglife
lovinglife
10 years ago

I would sell the house as it seems that if a better life/work opportunity came along you would take it, owning the home may not make that possible. I consider myself fortunate that I knew when I started in my career that I was going to love and pursue it for my entire working life, but I also knew I would start at low pay and in order to move up the ladder I was going to have to move a lot geographically early on (I’m in college athletics). This has influenced every financial decision I have made, even when… Read more »

egg
egg
10 years ago

You’re right JD, no half as much is mentioned. The HOA is included in her $1500 housing costs which would be about the same as renting in her current high cost city.
Also, not sure why one reader is seeing that she’s in a 15 year mortgage. She states that she just refinanced into a 30 year mortgage last year, so most of her current payment right now is going towards interest isn’t it? Does that change anyone’s advice?

Kat
Kat
10 years ago

“Still, housing costs eat up about $1500 a month (and would be $400 more if not for the refinance). If I rented, I’d probably spend about that much for an apartment. ” Doesn’t this mean that including condo fees, she is spending $1500 a month? And renting is $1500 a month? Where are people getting that it is half as much to rent, or that she is throwing away the $500 condo fees, when she would be “throwing away” $1500 in rent??? It’s nice to say for her to do what makes her happy, but it really seems like she… Read more »

Christine T.
Christine T.
10 years ago

I second the career coach idea, it’s very hard to predict what will make us happy career-wise without trying things out. “I could do anything if only I knew what it was” by Barbara Sher is a great resource. I bought my condo in 2006 and definitely feel tied down by it but I’m not sure what I’m going to do yet so I’m hanging around. Someone said rent your place out which may not be simpler but it sounds like you will be able to cover the mortgage with rental prices in your area so that would be a… Read more »

Sandycheeks
Sandycheeks
10 years ago

The link to the career counseling “blog” is an advertisement for career counseling services.

honeybee
honeybee
10 years ago

I think the choice of your future career and the choice of your ideal living situation are getting a bit conflated. These are separate choices and since your asking this question implies (and your financial figures also imply) that you have a great deal of flexibility, ultimately, I’d say you can make one decision without having to make the other. If you decide to change careers, and your new job or school requires you to live elsewhere to be close, then move at that time. Likewise, if you stick with the current job, you can move or stay in your… Read more »

Ken Marable
Ken Marable
10 years ago

I’m all for seeking a less stressful life, and I would say go for it! However, I recommend doing the job hunt first for a different lower-cost city, then selling the house. If you did move to a lower cost area, the $220,000 you have in equity could entirely pay for a multi-bedroom home with a decent yard for your garden! Imagine having your garden and zero mortgage payments!! Sounds like less stress to me! But take some time to do some research. Look into other cities that you would like to live in. Look for jobs that you would… Read more »

Rob Ward
Rob Ward
10 years ago

We are not planning to move or sell our house anytime soon, but we did recently consider going down to one car and a motorcycle (as opposed to two cars). We would then only have one car payment and get that paid off ASAP. But with winter approaching we decided to wait until next spring. I can definitely relate to Catherine’s situation wanting to get rid of her debt.

fpfj
fpfj
10 years ago

Seems like the main thing she needs to do is research. She doesn’t have all the facts yet and once she does, she’ll know (hopefully) what she should do. One potential way is to rent out her condo to cover the condo fees (she should be able to do this if the condo assoc allows her & if she’s renting it out with her furniture). She can rent a room somewhere else. It’s drastic but it will save her money, force her to look at her material possessions and decide their importance in her life and also decreases socializing because… Read more »

Carrie
Carrie
10 years ago

There is no easy answer here as the desire to moves sounds somewhat fueled by wanting to make some life changes. My advice would be to make any life changes one at a time. Don’t forget that if you rent you are stuck in a lease for usually a year. Don’t forget the cost of moving. Just two things I think haven’t been mentioned against renting. But overall I do like the idea of simplifying, I’m just not sure selling a condo to rent is the answer (except anticipated repairs). If this were a matter of downsizing to reduce expense… Read more »

Jason
Jason
10 years ago

First off, I think you need to take a breath. Then you need to spend some time *seriously* thinking about where you want to go in life. Right now, the “small home in the country with a garden and a less stressful life” is a fantasy. Fantasies are great — they can either be a pleasant getaway from real life or they can serve as a vision or a goal that you want to achieve. So I would use that as a starting point and ask yourself lots of questions about what appeals to you from this fantasy. You’ll likely… Read more »

Rich
Rich
10 years ago

I’m also called Rich, though a different one to the guy at 5:21am, but like him can’t understand why anyone with a $10k emergency fund would have credit card debt. I’m intrigued to the thinking behind this, as unless the card interest rate is 0% it will surely be costing her much more money than any interest earned!

Andrea Pokorny
Andrea Pokorny
10 years ago

Wow, the mind games money plays.

It’s clearly too soon to make a decision, with all the wishy-washy talk. But, it sounds like you want to sell.

You seem to be level headed enough to understand what the right move would be for you (financially speaking).

I think you’re on the right track by weighing the options. Best Wishes.

Nick
Nick
10 years ago

I agree with the commenters and JD. Definitely take your time. I also think downsizing may be great for you. In this scenario you could consider downsizing to a place that would (a) keep your mortgage payments (and other carrying costs) constant (or lower – depending on your interest rate, and lower condo fees, taxes and insurance the smaller place); and (b) pay off your debt with the difference in cost. But be aware of closing costs on the new place. That could be a cost of doing businss. But your debt is low – why can’t you pay off… Read more »

in the end
in the end
10 years ago

#1-Have to figure out what your going to do with your career first, everything else can wait. If you have no income or it drops significantly it will impact your ability to make your other plans, plus you don’t want to move until you know whether your new career will impact your location. #2-It would be helpful to know where you live? If you sold your condo in many areas you could buy a small house (1000-1500sqft) for around 200k or less and be mortgage and rent free. #3-Tied into the above, I don’t see how you solve the stress… Read more »

Jan
Jan
10 years ago

Correction on mine- our taxes are going up $200 every 100,000 not 1000. Sorry!

Michael Crosby
Michael Crosby
10 years ago

Catherine,

Sounds to me you have a combination of wanderlust, along with being tired of your job and home.

And you’re willing to move to a less expensive area.

Dudess, go for it. Don’t just stick your toe in the water, jump in.

Sandy L
Sandy L
10 years ago

My first gut reaction was to “sell” but then I thought about it and changed my mind.

Selling a house and moving costs money. If she found a job in a lower cost of living area that would also pay for some relocation expenses, that would be ideal.

Selling now would most likely mean moving twice..the temporary place, then the dream place. I’d skip the middle step.

Brenton
Brenton
10 years ago

After reading the story twice, and giving it some thought, I think she should sell the condo, and take the profit from it(~$100,000, depending on the value of the condo) and use that money to buy a house in a less expensive city. If she did that, she would have little or no rent, would have plenty of space to have a garden, and would free up an extra $1500 a month. With so much less in committed expenses, she would be free to find a lower paying job that she actually enjoyed, or even to go back to school… Read more »

Kevin
Kevin
10 years ago

This is interesting; when I saw the post I immediately thought “YES YES YES!”, but like the author says, it requires a little more planning.

I think it depends on your income; if you’re paying more than 31% of your monthly gross (HUD guidelines) on mortgage, tax, insurance, and assessments, it’s DEFINITELY worth thinking about selling. Otherwise, I agree with the posters who have pointed out that it really isn’t that much debt comparatively, and you should just wait a while and pay down the debts monthly.

Kim
Kim
10 years ago

You sound confused about the direction you want your life to take. IMHO, it’s best to stay put till you come up with a solid plan.

In the meantime, pay off your debts which will give you even more flexibility when the time comes to make changes – you don’t have far to go.

Jaime
Jaime
10 years ago

Part of your considerations for selling your condo are those special assessments coming down the line – that is something else you need to think about from a buyer’s perspective. Those special assessments stay with the condo, so it could be something you have to disclose (since you already know about it) and possibly comp a buyer to get the condo sold. Just something to think about since you may end up walking with less cash than you hope. But otherwise, I’m with a lot of other people. At this point, it sounds like you’re still in the fantasy stage.… Read more »

Robert Zaleski
Robert Zaleski
10 years ago

I think the association costs, plus the upcoming improvements are a big deal prompting her to think about selling now. I wonder how that affects things. I agree with J.D. about taking baby steps and making sure you’ll be happy with what you’re moving to if you do change careers. I see people who want to get into IT, but if they aren’t sure they’ll like it, why switch? Figure that out the best you can first, especially if you have a good job now. I think there was a story about someone teaching Yoga on the side to get… Read more »

Naomi
Naomi
10 years ago

Don’t get caught selling low and buying high. If you sell your condo in a down market, try to buy before the market rebounds.

JaM
JaM
10 years ago

Like some others mentioned including JD – do not make a hurried descision. For the most part Catherine has been fiscally prudent, maybe this is a passing phase of midlife ‘whatever’.
Selling her condo to move to a smaller town without any goals and no debt will do her spirits no good. She needs a change in scenery. Happiness is elusive. The better option would be to take a vacation to a third world nation to experience some poverty and maybe Catherine will return with a new perspective.

Ethiope
Ethiope
10 years ago

I can relate so much to your post. I’m in my mid-forties and have been searching for what I want to do when I grow up for the last 9 years. The fact that I’m searching becomes confusing to people when they realize that I’m a physician. Many believe that’s the end-all-be-all, but everything has to be a good fit, and many parts of medicine aren’t for me. I built a house 8 years ago and used home equity to do landscaping and to buy a car, and now, of course, my equity has gone WAY down. I’m not underwater… Read more »

Money Obedience
Money Obedience
10 years ago

JD, I agree with your response. Catherine can enjoy one of the major benefits of good personal finances: she has options. In her case I would also wait and see what I would want to do with the rest of my professional life. No need to make any rash decisions. She is in an enviable position.

Des
Des
10 years ago

@ElCheapo

She says in her question that she has a 30-year mortgage, not 15:

“My mortgage is very affordable because I refinanced into a 30-year loan last year.”

Kevin M
Kevin M
10 years ago

I wouldn’t sell unless you could find something cheaper to rent. What’s the advantage of spending $1,500 to rent when you can pay that much to eventually own? You’re self-employed, could you move to a lower cost area with no drop in income? If yes, step 1 would be to start looking for the small city you dream of, then go there to check it out for a week or more. On the other hand, if I were you, I would probably sell the condo, use the equity to pay cash for a place and live off the nest egg… Read more »

partgypsy
partgypsy
10 years ago

If I had a mortgage at a place that would cost the same amount to rent, I would stay where I was. Yes, there are HOA dues but there are also yearly rent increases.

The only exception is if there was a specific, concrete plan to move to a different area in 1-2 years and wanted to avoid complications/risks of selling a house and buying a house at the same time.

chacha1
chacha1
10 years ago

El Cheapo’s analysis of the assets/liabilities is off, too. 132K in mortgage debt is not an asset. And that $500/mo association fee is an outrage, for something with such a low value. I would sell it at the first opportunity, but that’s just me – I’m a happy renter. Oh – and I’d really put that $400/mo liberated by the refi, to pay off the HELOC and the CC debt. Both are anchors. I detect a whiff of midlife … not “crisis” precisely, but that classic case of “there must be more to life.” Having been through it myself I… Read more »

Nick
Nick
10 years ago

For the rent v. buy issue, check out this (http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html) and the related article. It’s definitely interesting. Depending on where you live, renting may make more sense.

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