These days, it is not uncommon to feel “trapped” in your home. With the lack of available houses on the market and the historically low interest rate mortgages that most homeowners have, there is reason to feel constricted. Here is an incredible stat: Approximately 60% of the outstanding conventional mortgages in the United States are under 3.99%. More spectacular is that approximately 83% of these mortgages are under 4.99%. You can understand why there is a housing inventory crisis.
That said, it’s critical to recognize that circumstances may arise, even in today’s environment, that should warrant full consideration of your options – even if it means giving up your sacred 2% or 3% mortgage.
Consider the following scenario: I was recently introduced to a homeowner who refinanced their mortgage a few years ago with an excellent interest rate of 3.125%. A few months ago, he turned down a job offer in a different state because of the daunting thought of losing his current low-rate mortgage, coupled with the fact that he would be overpaying to buy a house elsewhere.
He didn’t ask me my opinion, and I certainly didn’t proactively offer any financial advice, but I got enough context out of the discussion to allow me to ‘crunch’ some numbers for “fun.” Even after deducting a full realtor commission, transfer taxes, title, legal, and closing fees, the homeowner would receive a sizable amount of cash as proceeds from the sale of their home. He said they saw many “exceptional” homes online, but those houses would be $100,000 more than what they could sell this house for. That, plus the higher mortgage rates, made it a non-starter.
Granted, the prospect of giving up a low-interest-rate mortgage may seem absurd, but it’s important to analyze the full implications of your decision. He kept insisting that he “couldn’t afford to pay double for his new mortgage payment.” I did the calculation. In this scenario, the actual difference in monthly payments between the two mortgages would be $1,900. Most people don’t understand that just because the interest rate may be double, that doesn’t mean the payment will be double!
Moreover, his job offer was for an annual salary increase of over $20,000. Granted, that doesn’t fully cover the higher payment, but that should not be the only consideration. First, he would benefit immediately by relocating to a bigger home in a better location. Additionally, he should consider if they can reduce other expenses, such as commuting costs or household expenditures, ultimately resulting in a net positive impact on their total monthly cash flow.
In addition to financial considerations, other factors come into play when considering a move. For instance, they may be moving to a location with better job prospects, leading to future career growth and increased earning potential. The move may also give them access to better schools and community resources for their family. The benefits of an overall better quality of life are incalculable.
Specifically, in this scenario, the homeowner would be relocating from New York to Florida, which has significant tax benefits. Florida has no state income tax, estate tax, or inheritance tax, allowing for more significant savings in these areas compared to New York. A move could result in substantial tax savings for the family, allowing them to allocate more resources towards other priorities such as retirement savings, investing, or pursuing other personal goals.
I would also argue that, specific to this example, the potential for further home appreciation in Florida versus what he might get in New York would be significant. In this scenario, the potential benefits of moving to a new home in a better location, better job prospects, better quality of life, and significant tax savings may have outweighed the drawbacks of forfeiting a low-interest mortgage rate. Ultimately, the decision should be based on thoroughly analyzing one’s financial situation, future prospects, and personal priorities. I am happy to help with such a discussion anytime!
Shout out and happy birthday to Irene Attali, Elisheva Baum, Rabbi Avi Bernstein, Lauren Blumenfeld, Chaim Cillo, Shira Donath, Miriam Fine, Yossi Friedman, Betty Mikhly, Naftali Olivestone, David Plotkin, Shmuel Prizant, Sharon Schild, Nomi Schwartz, Sara Weingarten and Rabbi Ari Zahtz.
Shmuel Shayowitz (NMLS#19871) is a highly regarded Real Estate & Finance Executive, Writer, Speaker, Coach, and Advisor. He is President and Chief Lending Officer of Approved Funding, a privately held national mortgage banker and direct lender. Shmuel has over twenty years of industry experience, holding numerous licenses and accreditations, including certified mortgage underwriter, licensed real estate agent, residential review appraiser, and accredited investor, to name a few. Shmuel has successfully navigated through many changing markets and business landscapes, making his market insights and experience well-coveted within the real estate industry. He can be reached via email at [email protected].
