Reply to Americans locked into lower mortgage rates have been increasingly unwilling to sell their homes.

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[quote=Anonymous][quote=Anonymous]Yes higher mortgage rates hurt, but not as much as some articles (or posts) would have you believe.  You have to do the math for your own situation.

Household A: Locked in 2.5% on a $750K mortgage (monthly pmt $2963).  That means interest expenses in the first five year of mortgage are roughly $18K / year.  Adding the SALT deduction of $10K, they can deduct $28K come tax time (or just take the equivalent $27.7K standard deduction).

Household B: in current market, gets 7% rate on same $750K mortgage (monthly pmt $4989).  That mean deducible yearly interest expense of roughly $51.5K.  With SALT, that's $61.5K deductible, an increase of $33.5K in deductible expenses for tax savings of $13.4K (assuming 40% combined fed/state marginal tax rate), or $1117 per month.  That reduces the effective after tax monthly payment to $3872 when compared to household A's mortgage.  That's equivalent to a 4.66% mortgage rate (after tax).

So, relative to the 2.5% mortgage, still a big jump, but not as big as the hype would have you believe.

Per above poster claiming a $50K raise would be required: to handle that difference, you'd need an extra $3872 - $2963 = $909 per month, or $10908 annual after tax increase in income, which means a gross salary increase of roughly $18K before taxes are taken out (again assuming 40% combined marginal rate).  Any price increase component should be ignored: it has presumably also increased the equity in your existing home.  For someone making $300K, that's a roughly 6% raise, so it shouldn't be that big of a factor (assuming folks won't go through the trouble of a job change for small raises).

TLDR: do the math for your own situation, it may be a lot milder than the Sturm und Drang online would have you believe.[/quote]

I think you’re oversimplifying. As someone with a 300k HHI I can tell you that just simply getting a raise to make an extra 900/month isn’t that easy without switching jobs, especially if that income is from 2 spouses working so each would need to get an average 6% increase. Further, I’d also need some raises just to afford to move up to another house to begin with.

For instance, my originally 900k house (with originally 650k loan, about 575k left) is now worth about $1.2m. There are home with more space I’d love to move to for about $1.5m. If I sell my home I’d net maybe 550,000 after 4.5% fees + 10k closing costs. So now I have to come up with another 200k downpayment *and* $900/month. That is going to take a lot more raises than 6%. And maybe at a lower interest rate I could have swung a larger mortgage in lieu of coming up with the full 200k extra DP. But added all together with existing inflation on stuff, I just don’t know how we’d ever move up to another house. So it just makes sense to make do with our existing home.[/quote]

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