3% Mortgage Holders Have a Mixed Blessing
Having a 3% mortgage is wonderful right up until you think about moving. Who wants to trade a 3% mortgage for a % mortgage – right There is a solution! Actually, there are several solutions, and we would love to discuss them with you, but let’s just look at one possibility here.
“Lemons to Lemonade”
Frank and Jan wanted to downsize. They had been in their home 20 years. Their kids were grown and they longed for simpler times. Less to clean, less to keep up. The problem was that they had refinanced in 2021 and gotten some cash out. Now, they owed $500,000 – about half of what their home was now worth ($1,000,000), and they had a juicy 3% mortgage. How could they let that go???
Solution - Don’t sell!
They found a lovely townhome for $500,000. All they had to do was figure out how to finance it while they still had the loan on the big house. The process was simple. They leased the big house on a 12-month agreement, which released their eligibility for a new loan on the townhouse. They needed 20% down, $100,000, which they borrowed on a home equity line on the big house. The townhouse was at 6% on a $400,000 balance, and if interest rates dropped in the future, they could refinance the rate down.
In the meantime, the old house was producing rent and because they had such a low payment, that rent was more than their monthly expenses – positive cash flow – which they could apply to the hew townhouse payments. So, they ended up in their smaller home, paying less than they were paying before.
Their equity in the old home was still intact. If they ever needed it they could sell them, but for now it was a solid investment, and they found themselves now enjoying appreciation on two properties, instead of one. In other words, at a 5% annual appreciation, their wealth was growing $75,000 a year (.05 x $1,500,000), instead of only $25,000 a year (.05 x $500,000) on the townhome alone.
If you have a 3% mortgage and want to downsize, call us now. We can look at your situation together and just maybe make lemonade.
- Joseph
