Buyer guide
Yes, rates are high. Here’s what the payment really is
The rate you see in the headline and the cost you actually carry are two different numbers. Between them sits a seller credit, two tax deductions, and a payment that drops further than most buyers expect. Here’s the full math on a $1,000,000 purchase.
The headline number isn’t the real number
Start with the scary version. A $1,000,000 home, 20% down, an $800,000 loan at 7.50%. Principal and interest come to about $5,594 a month, and property tax at 1.25% adds roughly $1,042 — call it a $6,635 monthly payment. That’s the number that makes buyers freeze. But it’s the first line of the math, not the last.
The six steps from headline to reality
- Start at $6,635/mo. P&I on the $800K loan at 7.50%, plus 1.25% property tax.
- A $25,000 seller credit buys the rate down to 6.75%. The payment drops about $405 a month — for the life of the loan, not just year one.
- Year-1 deductions stack up. About $53,700 of mortgage interest (the federal deduction counts the first $750K of the loan; California counts all of it) plus $12,500 of property tax.
- Those deductions cut the tax bill. For a married couple earning $275,000 in California, that’s roughly $15,000+ a year in combined federal and state savings — about $1,250–$1,300 a month.
- The effective rate falls. Because so much of an early payment is deductible interest, the 6.75% note rate carries an effective after-tax cost closer to 5% for a buyer in this bracket.
- The real monthly cost lands near $4,950. That’s roughly $1,685 a month less than the $6,635 headline — same house, same loan.
None of this is a trick. It’s a buydown plus two deductions buyers are already entitled to — the kind of math that rarely fits in a rate headline.
Why this matters — for buyers and for sellers
For buyers: the payment you can actually carry is usually lower than the one that scared you off. Knowing the real after-tax number can be the difference between waiting and buying — and the buydown is often paid by the seller, not you.
For sellers and listing agents: a price cut and a rate buydown can cost the same dollars, but the buydown moves a buyer’s payment far more — and it keeps your recorded sale price on the comps. If a listing is sitting, offering a credit toward a buydown is frequently the stronger move. The price cut vs. rate buydown tool shows that side by side.
A calculator gets you the estimate. Your actual rate, the cost of the buydown on any given day, and your exact tax result depend on your full file and your CPA — so treat these as illustrations, then get the real numbers.
Common questions
Is a mortgage payment really cheaper after taxes?
For many buyers who itemize, yes. Mortgage interest and property taxes are deductible, so a slice of the payment comes back at tax time. On a $1M California purchase with an $800K loan, the year-1 deductions can be worth over $15,000 — roughly $1,250 a month — which turns a payment in the $6,000s on paper into something closer to $5,000 in real cost. Whether you benefit depends on your income, filing status, and whether your deductions beat the standard deduction.
What does a seller credit do to the mortgage payment?
A seller or lender credit can buy the interest rate down permanently. On an $800K loan, a $25,000 credit can move the rate from about 7.50% to 6.75%, which lowers the payment by roughly $400 a month for the life of the loan. The exact rate the credit buys changes daily and by lender.
What is an effective after-tax mortgage rate?
It’s your note rate minus what the mortgage-interest deduction knocks off, measured as a share of the loan. Because a large chunk of early payments is interest, and interest is deductible, a 6.75% note rate can carry an effective after-tax cost closer to 5% for a buyer in a high bracket who itemizes.
Want this math on your deal?
Send over a price and a scenario and Justin will run the real buydown pricing, the payment, and the tax picture for your file — usually the same day, with no credit pull to start.
See my real number