Many homeowners are holding back from moving because they don’t want to give up their low mortgage rate. But in doing so, they may be missing out on long-term equity gains that far outweigh the interest savings. Let’s walk through an example.
The Current Situation
Imagine you own a $400,000 home with a $200,000 mortgage at 4%, with 24 years left. On the surface, it feels smart to stay put…you’ve got a great rate and manageable payments. But what happens if you want to upgrade to a $600,000 home and you keep waiting?
Selling & Buying
Selling your current home at $400,000 and accounting for about 7.5% in selling costs leaves you with around $170,000 in equity. Apply that equity toward your next purchase, and your new loan on a $600,000 home would be roughly $430,000.
At today’s 6.25% for 30 years, your principal and interest would be higher than your current payment. But here’s the bigger picture:
Equity Growth on the New Home
- Appreciation: At an average of 4% annual growth, a $600,000 home could rise to about $730,000 in just 5 years, an increase of $130,000.
- Amortization: Over those 5 years, you’d also pay down about $50,000 in principal on the new loan.
- Combined Equity Gain: That’s about $180,000 in new equity, more than you’d ever gain by staying put in your current $400,000 home.
The Cost of Waiting
If you don’t move, your $400,000 home will still appreciate, but at 4% annually, that’s only about $87,000 in five years. Plus, your mortgage paydown would be much less since your loan balance is lower and further into amortization.
By staying put, you’re essentially trading short-term savings for long-term opportunity. The gap in wealth-building between the $400,000 home and the $600,000 home widens more every year.
The Smarter Move
Yes, you’ll give up a low rate�but you’ll gain the bigger advantage: a larger asset that appreciates more in dollar terms and builds more equity through amortization. Over time, appreciation on a higher-value home creates significantly more wealth than clinging to a lower-rate mortgage on a smaller property.
Don’t let the fear of losing a low interest rate stop you from moving up. By investing your equity into a larger home today, you benefit from greater appreciation, stronger amortization, and the long-term financial rewards of owning a more valuable property.
We can provide a Move Up Analysis to help you see your options.
