In a market where low mortgage rates lure hesitant homebuyers, it’s crucial to recognize the hidden costs that might deter move-up buyers. Let’s dissect the scenario of a buyer reluctant to leave their 3.75% mortgage rate and explore how leveraging our debt consolidation tool to bridge the gap.
Let’s start with an example of a borrower who purchased a home 6 years ago, has paid down their mortgage using normal amortization terms, and experienced 5-6% per year of home appreciation during their ownership. As the image shows, their rate is 3.75%, the estimated home value is $695,000 and if they decided to sell, after loan payoff and expenses to list the home, they would have approximately $317,000 in equity to put towards their next home.
The move-up proposed purchase price, in this example, is $850,000. After the standard closing costs on the new loan, the buyers would have $307,000 to use as the down payment and apply for a $543,000 mortgage.
But here is why the move-up buyer becomes reluctant to give up their current rate compared to today’s higher mortgage rate environment. Assuming a mortgage rate of 7.625% vs 3.75%, the overall payment deficit would increase by $2,348/mo. leaving the buyer scratching their head on why they would want to take on this additional debt load.
The illusion of one’s low mortgage rate blinds them to what their blended rate might be when factoring in consumer debts, if applicable, and including the annual percentage yield (APY) of each debt in the calculation. As shown below, assuming the following debts and the APY of each one, the blended rate is not too far from today’s mortgage rate.
The missed opportunity for the move-up buyer is calculating the blended rate and strategizing how to use some of the net proceeds from the sale to eliminate the consumer debt. As the image below shows, using $68,000 from the proceeds to wipe out the consumer debt, the deficit is reduced from $2,348/mo. to $1,169/mo. or a savings of $1,179/mo. It is still an increase to the buyer’s overall monthly budget but could be enough to consider giving up their low mortgage rate to improve their living situation.
In facing the reality of rising mortgage rates, buyers must embrace proactive strategies that maximize financial efficiency and pave the way to homeownership. By leveraging available tools and understanding the true costs involved, buyers can confidently embark on their journey to a new home, supported by informed decisions and financial empowerment.
Take the first step towards informed decision-making by requesting your complimentary debt and blended calculation reports today, empowering you to determine whether a move-up is a viable option for you.
