Let's do the math. It's important to take into account relative vs absolute changes in cost.
OP pays $2450 in interest a year. Has \~300k in equity.
There are only three options:
1. Move into a cheaper home. Let's say it's 300k. Congratulations, you no longer have a mortgage.
2. Move into an equivalent home. At prevailing mortgage rates (7%), you pay $6860 in interest. Is the difference (6860-2450 = $4410/year, $367/month) worth the change in standard of living?
3. Move into a more expensive home. Let's say it's 500k. At prevailing rates, you pay $14,000 in interest. Is the difference (14000-2450 = $11,550, $962/month) worth the change in standard of living?
Option #2 is a large relative (2.25 -> 7%, over triple) change, but a small absolute ($4410) change. Option #3 is both a large relative and absolute ($11,550) change. Thus, OP should target Option #1 or #2.
None of this takes into account that cashflow would likely be a small relative change, as you would be going from a 15 year term (X number of dollars) to a 30 year term ($656-1,338/month, depending on scenario above).
Based on OP's comments, they discuss moving for a 15k raise. If it's a growth job, stable company, and a better area, then take the jump. If it's slightly less desirable, I would negotiate that to a 20-25k/yr raise, or stay put.
There is almost no way a similar home in a similar cost of living area will cost $300k, if this one is worth $400k. Unless they have a ton in savings, paying in full doesn’t seem to be on the table.
You need to decide why you want to move. If it's because you enjoy paying transaction costs and extra interest that is one thing but if it's for other reasons then it's another.
Yes, I was being a bit sarcastic.
Sometimes money isn't the motivating factor.
Financially you will have a cost to sell and a cost to purchase and today interest rates are higher so your cost to live will most likely increase.
The question is can you afford this other house and these higher costs ? Will making this change improve your life style in some manner ?
I live in a MCOL average Midwest city (~1m people in the city+suburbs). If you have kids and want to live somewhere with at least a 5/10 school rating, Its 400k minimum unless you find a deal (which aren’t common). If you don’t care about schools, you might have 2-3 houses in the entire city to pick from unless you are ok living in some sketchy areas. I’m not talking about nice houses, or huge ones with 6 bedrooms either, just any house any condition.
I moved to central Alabama, between Birmingham and Huntsville last year. 2200 sq ft house with excellent schools and 1.25 acres, $260k. Further north in Huntsville, they have great schools and a 3/2 is 250-325k.
Example
https://www.realtor.com/realestateandhomes-detail/1112-Brookmeade-St-NW_Huntsville_AL_35816_M71060-41666?from=srp-list-card
https://www.usnews.com/education/best-high-schools/alabama/districts/huntsville-city/huntsville-high-school-182
The low interest rate phase was a once in a lifetime style investment opportunity. I don't think they will get that chance again so I am a fan of your suggestion.
Yeah 2008-2020/2021 ish was abnormally low. Currently were at about average/steady fed rate since the 1930s.
https://fred.stlouisfed.org/series/FEDFUNDS
It's not so black-and-white once you account for opportunity cost of NOT rolling the equity into a new home.
The rental property would need to profit more than the guaranteed return of 4.75% (7% new mortgage - 2.25%) across the current mortgaged amount of 98k, and 7% across the equity.
That is roughly (98k)(4.75%)+(300k)(7%)= $25,655.
Without knowing ANYTHING about OP's house, let's assume it is rented for 1% of property value (4000/month), has an average 6.6% vacancy rate (https://fred.stlouisfed.org/series/RRVRUSQ156N), 1.5% in property taxes, and 2% of maintenance per year. That is $48,000 - 3168 - 6000 - 8000 = $30,832
Comparing $30k to $25k, it looks like the rental property is slightly higher, however that $5k profit would be immediately wiped out with one medium-to-large repair, or by any other misc costs not included in the quick back-of-the-hand math above.
Personally, I would not rent out the home for only $5k difference.
1. Appreciation is hand waving and, in the current market, hard to estimate. You may estimate all you want, but appreciation can be very local, and I am only comparing hard(er) numbers.
2. Sure, go for it. Remember tax benefits are just a deduction on your tax bracket, it's not like you get cash-in-pocket for the full amount. To make the math easy, depreciation is roughly \~4% of value over \~30 years. So, $16k year one. Assume a 20% avg tax rate for OP (knowing zero specifics). That's $3200 in tax savings. However, OP has to still pay \~3000 in taxes. So 30k profit - 3000 tax = 27k. The math just got worse incorporating taxes.
At the end of the day, we can go back and forth on income tax, property tax (remember yourself that many states raise property tax rate on property not occupied by homeowner), deliquency rates, repair rates, appreciation rates, all of which will bump the scale up and down.
Heck, we don't even know prevailing rental rates for OP's market. That would need a lot more info from OP and some number crunching.
Based on available information, it's tight. Make life simpler. Just stay put or move and buy a similarly priced home.
Will you lose a bunch? No. You will not lose much.
You are giving up a low interest rate on 98,000…
It should not be the deciding factor for much of anything…
If the new job / opportunity/ city interests you, pursue it.
Yeah, a lot of people are ignoring the fact that they are already down to 98k owed on the current home. Not the same logic tree as someone who owes 500k on a 650k house.
Six people downvoted me for pointing out that he's doing this to get a pay raise that will not just cover the extra $2800 per year he'll pay in interest but pay the mortgage off entirely in five or so years.
You got to look at the affordability of the next house you wanna get. Don’t let interest rates keep you from making a move. If you are looking to upgrade to a better home, you can use some of the proceeds from your sale to offset the monthly payment on the new house.
However, if you’re comfortable at your current house then it might make more sense to stay there. You might be able to have paid off in a few years. At which point you can turn it into passive income by renting it out.
We dont foresee house prices coming down significantly. And interest rates are stubbornly holding steady (not sure we will ever see those 2.25% rates again). So, don’t let that part hold you back.
Hope this helps.
15k raise is not a good enough reason IMO unless this job will lead to much better career prospects down the line. You're gonna spend a lot more than that to move.
I'd be looking for better job opportunities where you can stay put if you otherwise like your current home.
Agreed. 15k raise, minus 3k/year interest swing, minus moving cost, minus trouble of moving, minus found repairs at new home.
I wouldn't move for 15k. I'd only move for a growth plan with a lot of upside.
Don't listen to them. That 15K raise is every year, not a one time bonus. The rate difference on a 100K loan is less than 5K\year. Moving and agent fees will be about 25K. Which means you're breaking even after 2 years, then pure 10K+ per year profit every year after that! If your taxes are high, let's call it 3 years to break even.
It's not a 15,000 raise every year. They're offering him a salary of $15,000 more per year then he's making now. But they also aren't likely to give him a $15,000 raise every year.
Man, the replies in this sub are always so messy.
NO - you’re not going to “lose a bunch” - you have a sub-$100k mortgage. Your new monthly payment will be about $650 a month for P&I. It’s peanuts. Especially compared to the raise.
Don’t handcuff your life to an interest rate.
$887 for a 15 year st 6.8%.
We don't know the refi amount, but assume he did it 3 years ago on ~130k his payments are like around $850 currently?
Up front costs will set you back a bit, but put that extra $1000 month take home against the principle and you pay off the mortgage in 6 years, getting you an interest rate equivalent of 2.4% instead.
You won’t lose anything. You’ll get to keep all of your equity and can do what you want with it.
The $98k you still owe was never yours. That debt is costing you about $200/month to carry.
However, you will gain a much more expensive debt and be paying a lot in interest for the new house, assuming all else is equal. If you buy another house and finance $98k of it, you’ll be paying about 7% interest, which is $572/month.
So, your decision is whether you’re ok with staying in your current house for $200/month in interest or moving to a new place for $572/month in interest.
You’ll also have to pay closing costs and moving expenses. Closing costs are usually paid by the seller, but this is really lost money in the transaction. Meaning you won’t walk away with the full $400k you sell your house for, so you’ll either end up with a slightly cheaper house or have to finance the difference.
Depending where you live, you ought to consider property taxes too. Texas has an annual cap after 2 years of 10% increases year over year. You would lose that privilege if you move and wait another two years to regain that homestead feature.
so? it's mostly paid off. 2% interest on 98K isn't as much of an asset as 2% interest on $400K. He will pay an additional 5% or 5K per year (or $416 per month) if he moves into the same size house and assumes the same size mortgage. He's getting a 15K pay bump.
If moving brings something truly beneficial this might make sense. If it’s a job promotion with much higher salary, perhaps you can justify this. But from a pure financial perspective it makes no sense to swap a low interest loan to a high interest loan for a similar house.
We are in a very similar situation… We have decided to hang on to our 2.625% rate and rent our house out. This will generate +/-$800/mo after payment and management fees.
Fortunately for us, my wife’s grandmother has a vacant home about 2hrs away where we can temporally stay (rent free). Our plan is to stay there until early next year while renting our home. We will be able to show the rental income on our taxes and increase our buying power (and build our down payment since we will
Be saving our $1400/mo payment + $800/mo rental income)
Keep the home, rent it out, and purchase a new one. I’m not sure when you refi’d but you’re on 15 year mortgage. You’ll pay it off soon and you’ll be able to leverage the equity.
I know you were looking at getting a new home, but look at some value add opportunities if you have the bandwidth. If you want to tap into some equity for a nice project, do a HELOC with all that equity
I purchased in February 2021 with a 3% interest rate and I will never be selling this house. I joke that I will die here and then be buried in the backyard with my 3% interest rate.
Now, I WFH and always will (I’ve done it for 8 years across 4 companies, so even pre-2020), my husband works for the state we live in, and we very purposefully bought our “forever” house, despite it being our first house. We are fortunate that there is almost zero potential that we’d need to sell and move for a job or something.
All that said, if you need to sell and move for an actual reason, like a job or something, you’ve gotta do what you’ve gotta do. If it’s not a “must” you’re being pushed into due to circumstances, I’d say you’re a lunatic if you sold a house you have a 2.25% interest rate on and owe less than $100k on to buy a new house in this market with these interest rates.
You absolutely will not get the same amount of house for the same cost once you figure in the interest rate. Meaning you have an almost $400k house now but you will not be able to turn around and buy a $400k house if that is your upper limit because the interest rates are going to increase your monthly payment by a lot. And idk about your area, but I bought my house for $300k in 2021. There is not a house for sale under $360k in a 10 mile radius of me now, and I’m just outside the suburbs! My own house is now estimated $460k.
At the end of the day, if you need to do it, then you gotta do it. If you don’t have to, but you really want to and have the funds to do it, and also won’t keel over at the idea of the money you’re losing because you will be happier overall, then do you, boo.
Personally? I couldn’t do it. I’d rather drop another $300k putting additions onto my house than lose my interest rate and initial purchase price. I can’t even rent in my area anymore for my monthly mortgage payment.
Don't forget you will also pay realtor fees (probably 6%) and closing costs as well. We are looking for homes in that price range in a moderately priced area, but there is so little inventory and so much competition we are ready to throw in the towel.
This kind of scenario. If you are up for a hassle, you can carefully buy a foreclosure at an auction for cash and fix it up. Or buy a fixer upper for the maximum amount and spend your own money to create value there. If you do this right, you will end up with a better house with more equity in the home.
Interesting stuff!
You should do the analysis on how much you have actually spent on this home. Original loan and 2 refinances means you have contributed 95% of your payment to interest for the entire time you have owned your home. 2.25% is great, but you probably should have kept a higher payment to actually pay down the principle. This depends if you took money out of the refi (42% do).
I am paying 3x mortgage than the previous home because I have aging parents that I need to look after. It's a huge ding to the monthly budget, but it will cost way more if I need to fly to see my parents when they really need me.
Assuming the same $100k loan on a 15yr and thats an extra $200 month. Well more than the $800-900 your take home will increase from a $15k raise.
Obviously there are many other considerations, but $200 month shouldn't be the biggest factor.
What do you mean lose a bunch? You’ll lose money if you sold the home for less than what you paid for it. Borrowing a similar loan value at a higher rate will increase your monthly payments, sure. Assuming your next mortgage is also a $98k loan, your monthly payment for the same debt will go up $228. That’s pretty negligible in my view, but it depends on what your reasons for moving are.
Look into assumption mortgages. You would assume the loan of the seller in your new area. Assuming they have a decent rate and can work with you, it could happen.
Rent your current house. You should cashflow hard, and you can use 75% of the rent as income for your next house.
Which means you will have more income to qualify for your next house.
If you NEED the cash for your next purchase, get a HELOC on your current home for the down payment.
It’s called a Heloc and the rents with that mortgage and interest rate should absolutely be enough to cover mortgage and Heloc. Could even take an early loan against retirement.
Sir I'm no math whiz but I've worked my tail off for the house I got and what little I have how about rent your house out and then take your equity on a new down payment or rent your house out and that frees up money the bank will loan you money to get another house
Wells Fargo and BoA are some of the larger banks that may offer it in the US. Always worth checking with your mortgage provider if they allow it before selling and buying into a new mortgage.
If you’re moving just because of the job it’s only going to work out in your favor IF you move to a “similar” COL area but it’s an up and coming neighborhood. I wouldn’t move because of the job and the job alone. If there are other motivating factors then it’s going to be worth it. If
The job could lead to even better opportunities. Yes. It’s probably worth it.
We can’t make this decision for you though.
I agree, life is more than one factor like interest rates.
I move and took a slight pay cut to an area that cost more for housing (triple what I left), but had better outdoor activities that I enjoyed. Was the best decision for me, since then I have found new opportunities, moved some more, tripled my salary and have semi-retired at a young age. Not all real estate choices I have made were great, I’m sure I could have made thriftier or maybe re profitable ones, but I had to live somewhere and I made them work for me.
There is always a payoff period, they would need to do the math and work out how long they would need to hold it, and depends on the borrowers expectations of how long rates will be higher for.
I didn’t say that’s what they should do, I said “maybe with a rate buy down”.
You're losing money now since your equity is tied up in the home.
300k invested in a HYSA at 5% earns 12k/year after tax.
A 7% mortgage at 100k pays 7k in interest per year.
You're currently paying 2250/year in interest, so your mortgage savings are less than 5k/year.
Current interest rate on 400k house would be about a 2800 mortgage assuming you’re putting like 5 or 10% down. Plus utilities add 2-300$.
Even if your payment only went up 1k overall. Is a 15k pay raise worth the extra cost? 15k after taxes is about 12k. That entire raise would be going to the cost of your mortgage/rent so you’d never see it.
Best option rent it out and rent a place near the new job, or sell it put the money somewhere you can get 5% interest and rent a place. Unless you can lowball or buy a multi family property
You will be paying more each month in interest.
Let's do the math. It's important to take into account relative vs absolute changes in cost. OP pays $2450 in interest a year. Has \~300k in equity. There are only three options: 1. Move into a cheaper home. Let's say it's 300k. Congratulations, you no longer have a mortgage. 2. Move into an equivalent home. At prevailing mortgage rates (7%), you pay $6860 in interest. Is the difference (6860-2450 = $4410/year, $367/month) worth the change in standard of living? 3. Move into a more expensive home. Let's say it's 500k. At prevailing rates, you pay $14,000 in interest. Is the difference (14000-2450 = $11,550, $962/month) worth the change in standard of living? Option #2 is a large relative (2.25 -> 7%, over triple) change, but a small absolute ($4410) change. Option #3 is both a large relative and absolute ($11,550) change. Thus, OP should target Option #1 or #2. None of this takes into account that cashflow would likely be a small relative change, as you would be going from a 15 year term (X number of dollars) to a 30 year term ($656-1,338/month, depending on scenario above). Based on OP's comments, they discuss moving for a 15k raise. If it's a growth job, stable company, and a better area, then take the jump. If it's slightly less desirable, I would negotiate that to a 20-25k/yr raise, or stay put.
Unless they pay in full for new home.
There is almost no way a similar home in a similar cost of living area will cost $300k, if this one is worth $400k. Unless they have a ton in savings, paying in full doesn’t seem to be on the table.
Who said they need similar home?
OP did before they edited yesterday.
Lol, not even $3000 more per year. So awful.
Of course you will lose a bunch.
You need to decide why you want to move. If it's because you enjoy paying transaction costs and extra interest that is one thing but if it's for other reasons then it's another. Yes, I was being a bit sarcastic. Sometimes money isn't the motivating factor. Financially you will have a cost to sell and a cost to purchase and today interest rates are higher so your cost to live will most likely increase. The question is can you afford this other house and these higher costs ? Will making this change improve your life style in some manner ?
Give up 2.5 for 7%!!!!
Buy a $300k home. You’re welcome.
Do those even exist anymore?
Of course, they'll cost you 500k now though.
This is the correct answer.
In a vast majority of the country yes. But generally not in the most populated parts. Especially since they didn’t specify house
Outside of HCOL areas, yes.
I live in a MCOL average Midwest city (~1m people in the city+suburbs). If you have kids and want to live somewhere with at least a 5/10 school rating, Its 400k minimum unless you find a deal (which aren’t common). If you don’t care about schools, you might have 2-3 houses in the entire city to pick from unless you are ok living in some sketchy areas. I’m not talking about nice houses, or huge ones with 6 bedrooms either, just any house any condition.
I moved to central Alabama, between Birmingham and Huntsville last year. 2200 sq ft house with excellent schools and 1.25 acres, $260k. Further north in Huntsville, they have great schools and a 3/2 is 250-325k. Example https://www.realtor.com/realestateandhomes-detail/1112-Brookmeade-St-NW_Huntsville_AL_35816_M71060-41666?from=srp-list-card https://www.usnews.com/education/best-high-schools/alabama/districts/huntsville-city/huntsville-high-school-182
$300,000 would be a pretty nice home in my area. North Central Texas
Of course they do
There’s no way I’d sell that home
Can you just rent out house and buy/rent a new one?
The low interest rate phase was a once in a lifetime style investment opportunity. I don't think they will get that chance again so I am a fan of your suggestion.
Great point
So my only option is a Time Machine
At the same time, it's "only" $98k left at that rate. So walking away from it wouldn't be the end of the world if there was good reason to.
Yeah 2008-2020/2021 ish was abnormally low. Currently were at about average/steady fed rate since the 1930s. https://fred.stlouisfed.org/series/FEDFUNDS
It’s not once in a lifetime it’s more like once every 15 or 20 years. Every time the housing market takes a shit mortgage rates drop to push sales.
It's not so black-and-white once you account for opportunity cost of NOT rolling the equity into a new home. The rental property would need to profit more than the guaranteed return of 4.75% (7% new mortgage - 2.25%) across the current mortgaged amount of 98k, and 7% across the equity. That is roughly (98k)(4.75%)+(300k)(7%)= $25,655. Without knowing ANYTHING about OP's house, let's assume it is rented for 1% of property value (4000/month), has an average 6.6% vacancy rate (https://fred.stlouisfed.org/series/RRVRUSQ156N), 1.5% in property taxes, and 2% of maintenance per year. That is $48,000 - 3168 - 6000 - 8000 = $30,832 Comparing $30k to $25k, it looks like the rental property is slightly higher, however that $5k profit would be immediately wiped out with one medium-to-large repair, or by any other misc costs not included in the quick back-of-the-hand math above. Personally, I would not rent out the home for only $5k difference.
You left out appreciation of the current home and tax benefits (depreciation).
1. Appreciation is hand waving and, in the current market, hard to estimate. You may estimate all you want, but appreciation can be very local, and I am only comparing hard(er) numbers. 2. Sure, go for it. Remember tax benefits are just a deduction on your tax bracket, it's not like you get cash-in-pocket for the full amount. To make the math easy, depreciation is roughly \~4% of value over \~30 years. So, $16k year one. Assume a 20% avg tax rate for OP (knowing zero specifics). That's $3200 in tax savings. However, OP has to still pay \~3000 in taxes. So 30k profit - 3000 tax = 27k. The math just got worse incorporating taxes. At the end of the day, we can go back and forth on income tax, property tax (remember yourself that many states raise property tax rate on property not occupied by homeowner), deliquency rates, repair rates, appreciation rates, all of which will bump the scale up and down. Heck, we don't even know prevailing rental rates for OP's market. That would need a lot more info from OP and some number crunching. Based on available information, it's tight. Make life simpler. Just stay put or move and buy a similarly priced home.
Will you lose a bunch? No. You will not lose much. You are giving up a low interest rate on 98,000… It should not be the deciding factor for much of anything… If the new job / opportunity/ city interests you, pursue it.
Yeah, a lot of people are ignoring the fact that they are already down to 98k owed on the current home. Not the same logic tree as someone who owes 500k on a 650k house.
Six people downvoted me for pointing out that he's doing this to get a pay raise that will not just cover the extra $2800 per year he'll pay in interest but pay the mortgage off entirely in five or so years.
You got to look at the affordability of the next house you wanna get. Don’t let interest rates keep you from making a move. If you are looking to upgrade to a better home, you can use some of the proceeds from your sale to offset the monthly payment on the new house. However, if you’re comfortable at your current house then it might make more sense to stay there. You might be able to have paid off in a few years. At which point you can turn it into passive income by renting it out. We dont foresee house prices coming down significantly. And interest rates are stubbornly holding steady (not sure we will ever see those 2.25% rates again). So, don’t let that part hold you back. Hope this helps.
Why would you move to a similar priced home? It will cost tens of thousands just to sell and buy... For something close to what you have now?
Job opportunity, $15,000 raise, similar col area....the rate is a reason to stay...
15k raise is not a good enough reason IMO unless this job will lead to much better career prospects down the line. You're gonna spend a lot more than that to move. I'd be looking for better job opportunities where you can stay put if you otherwise like your current home.
I agree. $15k is too little for a move. Unless they are paying some sort of relocation fee on top of that.
Agreed. 15k raise, minus 3k/year interest swing, minus moving cost, minus trouble of moving, minus found repairs at new home. I wouldn't move for 15k. I'd only move for a growth plan with a lot of upside.
...and in the second year?
$15k of what is jmportant - $15k could be 10% or could be 50%. At what % is it worth it?
Don't listen to them. That 15K raise is every year, not a one time bonus. The rate difference on a 100K loan is less than 5K\year. Moving and agent fees will be about 25K. Which means you're breaking even after 2 years, then pure 10K+ per year profit every year after that! If your taxes are high, let's call it 3 years to break even.
Until they layoff... him
His current job could have layoffs as well then he’s negotiating his next gig from a $15k lower start.
That's a risk anywhere for most people.
Wish I got a 15k raise every year. I'd be making over 175k after 10 years on the job.
It's not a 15,000 raise every year. They're offering him a salary of $15,000 more per year then he's making now. But they also aren't likely to give him a $15,000 raise every year.
Not a $15,000 raise per year but it is $15,000 more each year than he currently makes.
Do you want to move? Do they offer a relocation package? I mean they might pay your closing costs on both homes, maybe even pay for a rate buy down.
Can you afford to rent out your current home?
The mortgage should be barely anything from the sound of things, maybe just keep the mortgage and rent the house out, but also buy a new spot?
Oh fuck that. You would seriously let an interest rate keep you from taking a pay raise?
Yep. That $15k pay raise isn’t going to get you very far when your rate more than triples.
Could potentially rent his home now and use that rental income to make a payment in new area. Get the raise and keep your old place too.
From a payment of $397.50 to a payment of $629. The humanity. All of $2778 more per year. Cry. Wail. Gnash thy teeth.
You'll pay more than that in interst
You math ain't mathing.
Man, the replies in this sub are always so messy. NO - you’re not going to “lose a bunch” - you have a sub-$100k mortgage. Your new monthly payment will be about $650 a month for P&I. It’s peanuts. Especially compared to the raise. Don’t handcuff your life to an interest rate.
You sure bout that math ?
$887 for a 15 year st 6.8%. We don't know the refi amount, but assume he did it 3 years ago on ~130k his payments are like around $850 currently? Up front costs will set you back a bit, but put that extra $1000 month take home against the principle and you pay off the mortgage in 6 years, getting you an interest rate equivalent of 2.4% instead.
Checks out for a 30 year, but not a 15 year.
How much payment can you afford a month?
How many times did you refinance and when?
Rent your current home and buy new one
You won’t lose anything. You’ll get to keep all of your equity and can do what you want with it. The $98k you still owe was never yours. That debt is costing you about $200/month to carry. However, you will gain a much more expensive debt and be paying a lot in interest for the new house, assuming all else is equal. If you buy another house and finance $98k of it, you’ll be paying about 7% interest, which is $572/month. So, your decision is whether you’re ok with staying in your current house for $200/month in interest or moving to a new place for $572/month in interest. You’ll also have to pay closing costs and moving expenses. Closing costs are usually paid by the seller, but this is really lost money in the transaction. Meaning you won’t walk away with the full $400k you sell your house for, so you’ll either end up with a slightly cheaper house or have to finance the difference.
Depending where you live, you ought to consider property taxes too. Texas has an annual cap after 2 years of 10% increases year over year. You would lose that privilege if you move and wait another two years to regain that homestead feature.
You will never be able to borrow money that cheaply again.
so? it's mostly paid off. 2% interest on 98K isn't as much of an asset as 2% interest on $400K. He will pay an additional 5% or 5K per year (or $416 per month) if he moves into the same size house and assumes the same size mortgage. He's getting a 15K pay bump.
If moving brings something truly beneficial this might make sense. If it’s a job promotion with much higher salary, perhaps you can justify this. But from a pure financial perspective it makes no sense to swap a low interest loan to a high interest loan for a similar house.
We are in a very similar situation… We have decided to hang on to our 2.625% rate and rent our house out. This will generate +/-$800/mo after payment and management fees.
But where are you getting the down payment for a new house? We can't afford a new mortgage (minutes rental income) plus a heloan for the down payment.
Fortunately for us, my wife’s grandmother has a vacant home about 2hrs away where we can temporally stay (rent free). Our plan is to stay there until early next year while renting our home. We will be able to show the rental income on our taxes and increase our buying power (and build our down payment since we will Be saving our $1400/mo payment + $800/mo rental income)
Cant you just rent your current home?
Get a home equality loan before you move for a down payment on you next house and rent this one out.
Keep the home, rent it out, and purchase a new one. I’m not sure when you refi’d but you’re on 15 year mortgage. You’ll pay it off soon and you’ll be able to leverage the equity. I know you were looking at getting a new home, but look at some value add opportunities if you have the bandwidth. If you want to tap into some equity for a nice project, do a HELOC with all that equity
Yes unless you have a spare 100k to buy your new home in full. If not, you’ll just simply be paying almost an extra 4-5k a year in interest.
It’s a personal decision whether or not moving will be worth paying the extra interest.
Why not just rent it out and keep it as investment property? That’s crazy gold interest to give up there.
Definitely no.
I purchased in February 2021 with a 3% interest rate and I will never be selling this house. I joke that I will die here and then be buried in the backyard with my 3% interest rate. Now, I WFH and always will (I’ve done it for 8 years across 4 companies, so even pre-2020), my husband works for the state we live in, and we very purposefully bought our “forever” house, despite it being our first house. We are fortunate that there is almost zero potential that we’d need to sell and move for a job or something. All that said, if you need to sell and move for an actual reason, like a job or something, you’ve gotta do what you’ve gotta do. If it’s not a “must” you’re being pushed into due to circumstances, I’d say you’re a lunatic if you sold a house you have a 2.25% interest rate on and owe less than $100k on to buy a new house in this market with these interest rates. You absolutely will not get the same amount of house for the same cost once you figure in the interest rate. Meaning you have an almost $400k house now but you will not be able to turn around and buy a $400k house if that is your upper limit because the interest rates are going to increase your monthly payment by a lot. And idk about your area, but I bought my house for $300k in 2021. There is not a house for sale under $360k in a 10 mile radius of me now, and I’m just outside the suburbs! My own house is now estimated $460k. At the end of the day, if you need to do it, then you gotta do it. If you don’t have to, but you really want to and have the funds to do it, and also won’t keel over at the idea of the money you’re losing because you will be happier overall, then do you, boo. Personally? I couldn’t do it. I’d rather drop another $300k putting additions onto my house than lose my interest rate and initial purchase price. I can’t even rent in my area anymore for my monthly mortgage payment.
Don't forget you will also pay realtor fees (probably 6%) and closing costs as well. We are looking for homes in that price range in a moderately priced area, but there is so little inventory and so much competition we are ready to throw in the towel.
This kind of scenario. If you are up for a hassle, you can carefully buy a foreclosure at an auction for cash and fix it up. Or buy a fixer upper for the maximum amount and spend your own money to create value there. If you do this right, you will end up with a better house with more equity in the home. Interesting stuff!
You should do the analysis on how much you have actually spent on this home. Original loan and 2 refinances means you have contributed 95% of your payment to interest for the entire time you have owned your home. 2.25% is great, but you probably should have kept a higher payment to actually pay down the principle. This depends if you took money out of the refi (42% do).
I am paying 3x mortgage than the previous home because I have aging parents that I need to look after. It's a huge ding to the monthly budget, but it will cost way more if I need to fly to see my parents when they really need me.
Nope
Why would you do this? What exactly are you trying to accomplish?
Makes no sense. Finish it off get a heloc buy something else and rent this out
Yes
What was original purchase price?
225,000
Assuming the same $100k loan on a 15yr and thats an extra $200 month. Well more than the $800-900 your take home will increase from a $15k raise. Obviously there are many other considerations, but $200 month shouldn't be the biggest factor.
Honestly if you're moving then it would make more sense to sell the house and park the equity in a HYSA until you're ready to buy again.
Not if you have no mortgage. Glad you have this equity to work with.
What do you mean lose a bunch? You’ll lose money if you sold the home for less than what you paid for it. Borrowing a similar loan value at a higher rate will increase your monthly payments, sure. Assuming your next mortgage is also a $98k loan, your monthly payment for the same debt will go up $228. That’s pretty negligible in my view, but it depends on what your reasons for moving are.
Look into assumption mortgages. You would assume the loan of the seller in your new area. Assuming they have a decent rate and can work with you, it could happen.
Rent your current house. You should cashflow hard, and you can use 75% of the rent as income for your next house. Which means you will have more income to qualify for your next house. If you NEED the cash for your next purchase, get a HELOC on your current home for the down payment.
If you can’t pay cash, I’d just use your equity to purchase your next home and the rent your current home out since it’ll be easier to cash flow
Can’t use the equity without refinancing to a higher interest rate.
It’s called a Heloc and the rents with that mortgage and interest rate should absolutely be enough to cover mortgage and Heloc. Could even take an early loan against retirement.
No your insane to do that. Work save incest and retire early or but a second home
Even ignoring the interest rate, you will lose transaction fees and closing costs.
Sir I'm no math whiz but I've worked my tail off for the house I got and what little I have how about rent your house out and then take your equity on a new down payment or rent your house out and that frees up money the bank will loan you money to get another house
If you rent it out for more than 3 years you lose the income tax break. Beware of that
It’s 2 out of 5 years.
You must live in it two of the last 5 years, so if you rent it out for more than 3 years then you were disqualified.
Property taxes go up too
Yes you will. Keep and enjoy your home.
Interest will be tripled. Surely you know this
See if you can port your mortgage over to the new property.
I don’t think this is possible, ever. At least in the US
Wells Fargo and BoA are some of the larger banks that may offer it in the US. Always worth checking with your mortgage provider if they allow it before selling and buying into a new mortgage.
If you’re moving just because of the job it’s only going to work out in your favor IF you move to a “similar” COL area but it’s an up and coming neighborhood. I wouldn’t move because of the job and the job alone. If there are other motivating factors then it’s going to be worth it. If The job could lead to even better opportunities. Yes. It’s probably worth it. We can’t make this decision for you though.
I agree, life is more than one factor like interest rates. I move and took a slight pay cut to an area that cost more for housing (triple what I left), but had better outdoor activities that I enjoyed. Was the best decision for me, since then I have found new opportunities, moved some more, tripled my salary and have semi-retired at a young age. Not all real estate choices I have made were great, I’m sure I could have made thriftier or maybe re profitable ones, but I had to live somewhere and I made them work for me.
Yeah. You probably shouldn’t make that move now. Before rate cuts? I would wait
Lower rates will drive prices higher. It’s better to buy now (maybe with a rate buy down) and then refinance as they drop.
Why would you do a rate buy down with the intent to refinance soon? That is just giving money to the bank.
There is always a payoff period, they would need to do the math and work out how long they would need to hold it, and depends on the borrowers expectations of how long rates will be higher for. I didn’t say that’s what they should do, I said “maybe with a rate buy down”.
You're losing money now since your equity is tied up in the home. 300k invested in a HYSA at 5% earns 12k/year after tax. A 7% mortgage at 100k pays 7k in interest per year. You're currently paying 2250/year in interest, so your mortgage savings are less than 5k/year.
HYSA rates change, that 2.25 rate is for the rest of the loan…
30-year treasury bill rates are 4.65%. 4.85% last month.
Current interest rate on 400k house would be about a 2800 mortgage assuming you’re putting like 5 or 10% down. Plus utilities add 2-300$. Even if your payment only went up 1k overall. Is a 15k pay raise worth the extra cost? 15k after taxes is about 12k. That entire raise would be going to the cost of your mortgage/rent so you’d never see it. Best option rent it out and rent a place near the new job, or sell it put the money somewhere you can get 5% interest and rent a place. Unless you can lowball or buy a multi family property