Have you been clinging to your ultra-low mortgage rate while longing for more space? You’re not alone. Many homeowners hesitate to “move up” because of higher interest rates. However, by focusing on appreciation instead of rates, you may find that a move-up home strategy leads to greater long-term equity. In today’s market, fewer bidding wars and the chance to refinance later offer unique benefits for buyers.
What is the Move-Up Home Strategy?
A move-up home strategy involves selling your current property—often with a lower balance—and buying a larger or higher-value home. The idea is simple: properties with higher purchase prices gain more value dollar-for-dollar as the market rises. According to the most recent analysis by Redfin, homes rose in value by over 11% in Michigan last year.
Let’s Consider two scenarios with this information:
- A $300,000 home appreciating at 11% gains $33,000 in one year (non-compounded).
- A $500,000 home with the same 11% growth gains $55,000 in one year (non-compounded).
The second scenario earns an incredible $22,000 more in equity in the first year, and assuming a steady trend of appreciation, more with each following year. Even if you have a slightly bigger monthly payment—say $1,800 more a month—that’s $17,000 in additional profit in the first year alone. You still come out ahead. The longer you wait, the more you miss out on those larger gains. Take a look at the chart below for the big picture.
Balancing Payment vs. Appreciation
Yes, a higher loan amount at a higher rate means bigger monthly payments. And the monthly cost may be higher depending on your situation, but the extra equity you build with a more valuable home absolutely outweighs that cost. Over several years, appreciation can far surpass the additional interest you’re paying monthly. Curious how it applies to your unique situation? Click the button above to dial things in and see for yourself!
The Power of Refinancing Later
Rates fluctuate over time. If you buy when they’re higher, you’ll have less competition, which can help you avoid bidding wars which lowers your purchase price, and produces even more equity over time. When rates drop in the future, you can refinance to reduce your monthly payment—while keeping all the equity you’ve already gained. Locking in a more expensive home now allows you to get ahead of the property tax increase curve, and capture larger appreciation today.
Move-Up Now or Lose Out Later
The longer you wait to “move up,” the more you risk losing in potential equity gains. Here’s why:
- Higher-Value Homes Appreciate More: An 11% increase on a $500,000 home yields significantly more total dollars than a $300,000 home will.
- Lower Competition Today: Fewer bidders means a better purchase price.
- Lower Taxes Today: In Michigan, your property taxes are capped after you purchase your home and can only increase by the lesser of 5% or the rate of inflation each year. Getting in early means lower taxes for life.
- Future Refinancing: You can always adjust your loan later, but you can’t rewind missed appreciation.
Start Your Move-Up Home Strategy with Mortgage 1
When you’re ready to explore a move-up home strategy, Mortgage 1 is here to help. Our friendly loan experts can guide you through our loan options and create a plan tailored to your needs. If you have questions, contact us or meet our team.
Final Thoughts
Would you rather have a super low rate on a smaller property, or a higher-value home that gains more equity each year? Many homeowners choose building wealth. With fewer buyers in today’s market, you can upgrade to a bigger home and refinance if rates drop down the road. For more tips on real estate and move-up home strategies, visit our blog and share this post with anyone seeking a more spacious future.