Thinking of Moving to a State With Cheaper Housing? Here's Why You May Want to Hold Off

It's a move that may not actually pay off.

For many people, housing is their largest monthly expense. And whether you rent a home or own one, that expense is probably far more expensive than the next costly item on your list.

Meanwhile, the cost of housing can vary depending on what part of the country you live in. In some cities, $1,000 will buy you a nice apartment. In other cities, $1,500 won't even be enough to rent your own studio.

The same holds true when we talk about homeownership. In some areas, a nice starter home might cost $200,000. In other areas, you might need to spend $1 million or more for a two-bedroom, one-bathroom condo or townhouse.

If you're tired of grappling with sky-high housing costs, and you're able to work from home or find a new job easily, then you may be thinking about relocating to a part of the country where it doesn't cost as much money to purchase a home. But while that can be a good strategy in general, it may not be your best move right now.

A less expensive home won't necessarily save you tons of money

Let's say you're tired of paying the mortgage on a $500,000 home, so you're thinking of moving to an area where you can buy, say, a $300,000 home and wind up with roughly the same amount of space. It's a good idea in theory. But the numbers may not work out that nicely due to the cost of borrowing today.

It's gotten more expensive for consumers to borrow money across the board, whether in the form of an auto loan, personal loan, or mortgage. And these days, borrowers are looking at more than twice the mortgage rate they would've landed a year ago.

That's why moving to a state with cheaper housing may not be financially beneficial right now. It just costs so much to borrow for a home that even with a lower purchase price on one, you may not end up reaping all that much savings.

In fact, let's say you signed a 30-year mortgage on a $500,000 home that you took out a $400,000 mortgage on (in other words, you made a $100,000 down payment, or 20%). If you locked in a mortgage at 3%, it means you're paying $1,686 a month on principal and interest.

Now, let's say you can relocate someplace where you can buy a $300,000 home, and you can put down $100,000 on it. In that case, you're only borrowing $200,000. If you get stuck paying 7% interest on a 30-year mortgage, your monthly payment of principal and interest will be $1,330.

All told, you're looking at saving around $350 a month. That's not nothing. But it may not be a life-changing amount.

And also, remember that there's a cost of moving, and also, a cost of taking out a mortgage -- namely, closing costs to finalize that loan. All told, it could be a while before you come out ahead financially.

A smart move in a different borrowing environment

Moving to a state with less expensive housing makes lots of sense when borrowing rates are more affordable. But because mortgage rates are so high right now, it could pay to put those plans on hold.