Real-Life Example: The Move-Up Buyer Who Is Trapped by a 2.75% Rate

I spoke with a move-up buyer this morning who is in the exact position so many homeowners are in today. They own a home worth approximately $875,000. They owe about $350,000. Their current mortgage rate is 2.75%. Their payment is around $3,000 per month. That is a great situation. The problem? The wife wants to move up. The husband loves his interest rate. He is looking at the 2.75% mortgage and thinking, "Why in the world would I ever give this up?" On the surface, he has a very good point. She is looking to buy a home for around $1,150,000 as they have 3 growing boys. The estimated new payment would be around $5,995 per month.

So, the initial comparison looks like this:

Current payment: $3,000 per month – New payment: $5,995 per month – Monthly increase: $2,995 – Annual increase: $35,940 – That looks like the payment is doubling.

And if that is the only math the client sees, many buyers will stay exactly where they are. But that is incomplete math. The job of a great lender is not just to quote a rate and payment. The job is to help the buyer understand the full financial picture. So, let's keep going.

On their current home, their estimated mortgage interest and property tax deductions are around $20,000 per year. In a 24% tax bracket, that creates an estimated federal tax benefit of about $4,800. On the new home, the estimated mortgage interest and property taxes may be closer to:
Estimated mortgage interest: $44,000
Estimated property taxes: $14,000
Total estimated deductions: $58,000
In a 24% tax bracket, that could create an estimated federal tax benefit of about $13,920.
That means the new home may create about $9,120 more in estimated annual tax benefit. Now the math changes.
Annual payment increase: $35,940
Less additional estimated tax benefit: $9,120
Estimated after-tax annual difference: $26,820
Still more expensive, of course. But no longer as scary as the first number.
Now let's look at appreciation. The new home is approximately $275,000 more expensive than the current home. If we assume 4% annual appreciation on that additional $275,000 of value, that equals about $11,000 per year in additional potential appreciation.
Now the math changes again.
Estimated after-tax annual difference: $26,820
Less potential additional appreciation: $11,000
Estimated net lifestyle cost difference: $15,820 per year
That is approximately $1,318 per month.
That is a very different conversation than "My payment is doubling."

And then there is the refinance opportunity.
If rates drop by 0.50%, the estimated savings may be about $225 per month, or $2,700 per year.
If rates drop by 1.00%, the estimated savings may be about $450 per month, or $5,400 per year.
If rates drop by 1.50%, the estimated savings may be about $675 per month, or $8,100 per year.
If rates drop by 2.00%, the estimated savings may be about $900 per month, or $10,800 per year.
So if rates dropped from around 6.375% to around 4.375%, the effective cost difference could potentially fall to roughly $5,020 per year.
That is about $418 per month.
Now ask the buyer a different question:
Would you pay roughly $400 to $1,300 more per month on an effective long-term basis to own the bigger, better home?
More space – Better layout – Better backyard – Possibly a pool – Room for the family – A home that fits the next stage of life.
Now we are having the right conversation.
The buyer is not just giving up a 2.75% mortgage.
They are using their equity to move into a larger asset, improve their lifestyle, potentially increase their tax benefits, participate in more appreciation, and position themselves for a future refinance if rates come down.
That does not mean every move-up buyer should move.
Some should stay – Some should rent out their current home – Some should sell and move up – Some should wait.
But they should make that decision with the full math, not just the scary payment comparison they get when you let them look online or even call a bank!
This is where you, as Realtors, can create a huge advantage for your clients.
When your buyer says, "I cannot give up my 2.75% rate," the answer is not to argue with them.
The answer is:
"You are right. That rate is valuable. But let's have Mike run the full move-up analysis so you can see the real cost difference."
That is the conversation that helps buyers make smart decisions.
Not emotional decisions – Not fear-based decisions – Smart decisions.
But the big idea is simple:
Do not let a low interest rate be the only reason your client stays in the wrong house.
Run the real numbers, or even better, have me run the numbers! That is where the opportunity is.

Interest Rates
Really good day yesterday and a solid day today. We are on a 3-day winning streak, but still about .50% above our pre-war lows. Hoping this train keeps moving in the right direction.

Loan Programs Snapshot

Government loans (FHA/VA/USDA): in the 5s –
Conventional (≤ $832,750): low 6s
High-balance: mid to high 6s
Jumbo: Mid 6s
Bridge Loans 7.75-7.99
Additional options:

Bank statement loans (10% down+)
P&L loans (20% down, no bank statements)
0% down options (620+ score)
DSCR loans (15% down)
Buydowns Available (3/2/1, 2/1, 1/0)
Private Money loans – Hard Money
Construction Loans
203K loans
Commercial Loans
Fix and Flip Loans
Rates subject to change without notice.

Condo Update

Good news:

Bad news:
Palisades - 25730 Armstrong Stevenson Ranch CA 91381 – Critical repairs – Deferred maintenance – reserves – Insurance! Yes, they hit just about every bad thing you can! LOL!
We love your Non-Warrantable Condo loans!!

Need help checking a condo? Call me, and we can look it up in real time.

Also:

Full California "naughty list" available here:
https://mikemeena.com/non-warrantable-condos/ 

Let's Connect

If you or your clients, friends, or family need guidance, I'm here.

📞 661-291-2222 (Direct)

📞 661-714-6258 (Cell)

📞 661-260-2970 ext. 2222 (Office)

📧 Mike@AugustaFinancial.com

Sincerely,