Million Dollar Mortgage Anyone?
The million dollar mortgage is happening in Seattle. A month ago, for example, a developer friend sold a brand new house in the Bryant neighborhood for $1.4 million. The buyer — a young guy in the tech industry — put down $400,000 in cash and borrowed the rest.
This kind of financing is not uncommon now. And here’s a primary driver: Seattle ranks #4 nationally for the percentage of Millennials (ages 22 to 34) making at least $350,000 a year — about 3% of Millennials living in Seattle, a tie with Silicon Valley (Sunnyvale, CA) but lower than in San Francisco (6%) and Arlington, VA (9%). The Seattle area is also one of 13 cities where the share of Millennials earning at least $350k a year is higher than the share of Baby Boomers at the same income threshold.
But back to the $1 million mortgage. How does a $1 million mortgage play out, and is it a good idea?
Million Dollar Mortgage by the Numbers
First, let’s look at the numbers. Let’s assume that your family income is at least $250,000 annually and you have very good credit. At today’s low rates, you can probably get a $1 million jumbo loan for 30 years at around 3.8%. The monthly payments would look something like this:
$1 Million 30-Year Mortgage at 3.8%
Principal & Interest: $4,466
Mostly interest (around $3,000 a month) in the early years.
Property Tax: $1,400
Hazard Insurance: $1,400
The good news? If this is your only residence, you can deduct all that mortgage interest from your taxes, close to $36,000 annually starting out. But such deductions do start to phase out at incomes above $168,000. So you wouldn’t get the full benefit.
Million Dollar Questions
Should you go for it? That all depends on a bunch of different factors, says LNWM Client Advisor Bridget Burgess. Her top considerations would be:
***How secure is your income?
***How long do you intend to live in the house?
***How sure are you that you can sell your house for more than you owe on it? At the end of three years, you’d have a $900,000 mortgage.
***How much can you rent the house for? In case you move and can’t sell right away.
***How much will you have left after making the mortgage payment? Having kids, for one, can double monthly expenses.
***Can you continue to fund your 401(k) and other tax-advantaged savings accounts?