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Home Sale / Purchase Advice (giving up low rate) [VA]

Need some thoughts on a potential home sale/purchase next Spring

We bought our first home in 2021 with a nice 2.87% interest rate. Thinking about selling to buy in a better location. Was originally hesitant to sell due to the rate difference, but after running some numbers it's starting to make sense

Bought the current house for ~$1M with 20% down, mortgage payment is $4.4k. I could sell for ~$1.2M and generate ~$400k net proceeds after commissions etc.

New house would also be ~$1M with 20% down. At 6.5% mortgage payment would go up to $6.1k, about $20k/year higher payment

BUT

  1. I itemize deductions and would be able to deduct an extra $28k in mortgage interest, resulting in a $10k lower tax bill at the 35% federal rate

  2. I would have $200k extra cash to invest (400 from sale - 200 down on new house). 5% net on that $200k would be another $10k/year

$10k saved in taxes + $10k from investing the extra cash = $20k/year... the difference between my current and new mortgage payments. So essentially I'd be in the same annual cost position, just with more liquidity and less cash tied up in the house

The other big difference is that I'm currently paying ~$18k/year into principal and the new loan would likely be half that. So over 7 years (time horizon on new house) I will have paid ~$60k less into principal. There are also costs associated with moving, but not huge. And the new house would probably require some initial upgrades, but if we stay in the current house we'd do stuff here too so that's a wash. Also considering putting more than 20% down, could go up to 40% using proceeds from sale without touching other cash

Seems crazy to give up a sub 3% rate for a new mortgage at 6.5%... let me know what I'm missing!

submitted by /u/BattletoadRash
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source https://www.reddit.com/r/RealEstate/comments/1n0gz7r/home_sale_purchase_advice_giving_up_low_rate_va/
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