Can Your Home Equity Help You Make Your Next Move?

You may love your mortgage rate and still be ready for a different house.

That is the situation a lot of homeowners find themselves in. The house may no longer fit the way you live, but replacing a low mortgage rate with today's financing can make moving feel financially irresponsible.

Before deciding you're stuck, though, there is another part of the equation worth looking at: the equity you have built in your current home.

Equity does not make a higher mortgage rate disappear, and it does not automatically mean moving is the right decision. But it can change how much you need to finance, how much flexibility you have and what your next move could realistically look like.

What Exactly Is Home Equity?

In simple terms, home equity is the difference between what your home is worth and what you still owe against it.

If your home could sell for $500,000 and your mortgage balance is $200,000, you have roughly $300,000 in gross equity. That does not mean you would receive $300,000 at closing because selling expenses and other costs still need to be deducted.

But that estimate gives us a useful starting point.

The first step is understanding what your home would likely sell for in today's market rather than relying only on what you paid for it, the county's tax value or an automated estimate.

If you want to understand that distinction better, read what your Central Ohio home is really worth.

Why Does a Low Mortgage Rate Make Moving Feel So Difficult?

Because the comparison is usually obvious.

You look at the interest rate on your current mortgage, look at what financing a new home might cost and think, Why would I give this up?

That is a perfectly reasonable question. Your existing mortgage is a financial asset, and it should be part of the decision.

But the mortgage rate is only one part of your housing picture.

You may also be living in a house that is larger than you need, too far from where you spend your time, difficult to maintain or simply no longer right for this stage of life. On the other side, you may need more space, a different location or a home that works better for the future.

The decision becomes more useful when the question changes from “Do I want to give up my mortgage rate?” to “What would staying versus moving actually look like financially and practically?”

How Can Equity Help With Your Next Home?

If you sell your current home, your net proceeds may become a significant down payment on the next property.

That matters because the interest rate is only one factor in your payment. The amount you actually need to borrow matters too.

Someone selling a home with substantial equity may be able to put considerably more down on the next property than they did when they purchased their current home. That can reduce the loan amount and change the monthly-payment comparison.

Depending on your situation, equity might also give you flexibility to:

• Make a larger down payment
• Finance a smaller portion of the next purchase
• Pay off other housing-related obligations at closing
• Keep money available for moving expenses or improvements
• Purchase a less expensive home and retain part of the proceeds

Exactly how the proceeds should be used is a financial-planning decision, not a real estate recommendation. But before deciding moving is impossible, it makes sense to know how much equity you may actually have available.

Can Home Equity Make Downsizing Easier?

Sometimes this is where equity becomes especially important.

A homeowner may hesitate to leave a house with a low mortgage because the next mortgage rate will be higher. But if the next home costs substantially less and the current home has significant equity, the amount that needs to be financed may be dramatically smaller.

In some situations, a homeowner may be able to purchase the next home with a very small mortgage or potentially without one at all. In others, the numbers do not work nearly as well.

The word downsizing can also be misleading. A smaller house or condo is not automatically inexpensive, particularly in communities where low-maintenance homes are in strong demand.

That is why I prefer to look at actual homes and actual numbers rather than assuming downsizing will automatically reduce housing costs.

What If Staying Put Still Makes More Sense?

Then staying may be the right decision.

Knowing your equity does not obligate you to sell. In fact, sometimes the most valuable result of doing this analysis is confirming that moving right now does not make enough sense.

If the house still works well, the payment is comfortable and the financial cost of moving outweighs the benefit, you may decide to stay another year or several years.

That is still a successful planning conversation because you're making the decision with information instead of simply feeling trapped.

And circumstances change. Mortgage rates change. Home values change. Your remaining mortgage balance changes. Your priorities change.

A move that does not make sense today may look very different later.

Should You Use Your Equity to Fix the House Before Selling?

I would be careful with that assumption.

Homeowners sometimes think they need to remodel extensively before selling because they have equity available. But equity on paper is not the same thing as cash in your checking account, and not every renovation produces enough additional value to justify the cost.

Before spending money, I would evaluate the house as it sits today.

Sometimes the right preparation is paint, cleaning, minor repairs and staging. Sometimes a larger issue deserves attention. And sometimes the better decision is to price the home appropriately and let the next owner make the improvements.

For more on that decision, see what to fix before listing your home.

What Numbers Should You Compare Before Deciding to Move?

I would start with two columns: Stay and Move.

For your current home, look at:

• Current mortgage payment
• Remaining mortgage balance
• Property taxes and insurance
• Expected maintenance and major upcoming expenses
• Estimated current market value

Then estimate what moving might look like:

• Likely sale price of your current home
• Estimated selling expenses
• Approximate net proceeds
• Price range for the next home
• Potential down payment
• Estimated new mortgage amount
• Property taxes, insurance and HOA costs on the next property

That gives you a much more meaningful comparison than simply looking at two interest rates.

You can use my mortgage calculator to begin comparing different purchase prices and loan amounts, then review actual financing options with a lender.

How Do You Buy the Next Home When Your Equity Is Tied Up in This One?

This is often the next question.

You may have plenty of equity but still need the proceeds from your current home before you can comfortably purchase the next one.

There are several ways a move can sometimes be structured, depending on your finances and the homes involved. You might sell first, make an offer contingent on selling your current home, arrange temporary possession after closing, use short-term financing or coordinate the two closings closely together.

None of those options is right for everyone. The goal is to find the structure that gives you enough financial protection without creating unnecessary pressure.

I walk through those options in more detail in How Do You Buy a Home When You Have One to Sell?

Should You Borrow Against Your Equity Instead?

A home equity loan or line of credit may be an option for some homeowners, but borrowing against the house is very different from receiving proceeds from a sale.

A loan against your equity creates additional debt and monthly payments. Qualification, interest rates, repayment terms and the effect on your overall finances should be reviewed carefully with the lender and, when appropriate, your financial advisor.

I would not recommend borrowing against the house simply because equity exists.

For a homeowner preparing to move, the more useful question is usually whether accessing equity before the sale solves a specific timing problem and whether the added cost makes sense.

Start With the Number You Actually Know the Least About

Most homeowners know their mortgage rate. They usually know approximately what they owe.

The number they are less certain about is what the house would realistically sell for today.

That is the piece I can help with.

Once we estimate your market value and likely net proceeds, you can start comparing your options with real numbers. You may discover moving makes more sense than you expected. You may decide the numbers tell you to stay exactly where you are.

Either answer is useful.

Wondering Whether Your Equity Gives You Room to Move?

You do not need to decide to sell before asking that question.

We can start by estimating what your Central Ohio home may sell for, what you still owe and approximately what could be available for the next step.

Then you can compare staying, moving, downsizing or buying something different without guessing.

Frequently Asked Questions About Home Equity and Moving

Important: This article provides general real estate information and is not financial, lending, tax or legal advice. Financing options and the best use of home equity depend on your individual circumstances. Consult the appropriate lender, financial advisor, tax professional or attorney as needed.

The Bottom Line

A low mortgage rate is worth considering, but it does not automatically mean you have to stay in a home that no longer works for you.

Your equity may give you options that are easy to overlook when you're focused only on today's interest rates. Start by understanding what your home may sell for and what you might actually walk away with. Then compare that with the cost of your next move.

The goal is not to convince yourself to move. It is to find out whether you're truly stuck or whether the numbers give you more choices than you thought.

Representing Central Ohio Homes with Real of Ohio