With today’s market being affected by so many factors, it’s no surprise that many homeowners are feeling trapped by their current mortgage. The quandary boils down to this: “We’d like to move, but we don’t want to give up our current interest rate.
When clients call us, the conversation goes something like this:
We own a house worth $1,000,000 and have a $500,000 mortgage at 3%. We’d like to buy a $1,500,000 house and would need to borrow $1,000,000 at 6%.
The payment shock is quite concerning. Check out the graphic to see how the increase in payment is nonlinear: Since they are doubling the amount they borrow and doubling the interest rate their new payment is 2.8 times larger!
So what’s the answer? It depends on your personal finances and reasons for moving.
If making higher payments is not an option, you still win with your lower interest rate.
If you are able to make the larger payment, the financial impact at first may feel jarring. However, the financial rewards, when measured over decades, not paychecks, can be huge.
Most importantly, the purpose of owning a house is to make your life better. If a new house, even with a higher payment, does that, then it might be the best move you can make.