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]

Except most people in your scenario aren’t looking to make a lateral move. Although maybe they dump their equity into their upgrade? If that’s the case though, property taxes will be higher as will homeowners insurance so those factors need to be considered. As would starting a new 30-year mortgage.

Also, most people would balk psychologically at a $1,000/month higher housing payment.

But your fundamental premise that lower interest rates neutered the value of the mortgage interest deduction. One thing I could see happening, however, is a movement to convert the deduction to a credit to help first-time homebuyers; it would have to be capped for budget reasons, which would completely scramble the math. [/quote]

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