Should you remodel your house or move?

Homeowners have gained a lot of equity in recent years. Data shows that nearly half are considered “equity-rich” — meaning their mortgage balance is less than half their home’s total value. For those needing a larger house or one with different features, this glut of equity presents a conundrum: Do you tap your home equity with a home equity loan or line of credit to add onto your house and increase its value? Or do you sell the home, take the profits, and move on to potentially greener pastures?

Moving is one option if you have plenty of home equity and need something different from your home, but there are pros and cons to consider first.

• There are fewer hassles and disruptions. Moving would allow you to avoid the inconveniences that come with remodeling, such as loud construction and potentially inconvenient hours.

• You can cash in on your home’s appreciation. If your home has appreciated since you purchased it, moving will allow you to cash in on that appreciation and enjoy some hefty proceeds. You can then use those funds (or reinvest them) however you’d like.

• You can find a home that better meets your current needs. You can also use the funds from selling your home to buy a place that better meets your household’s needs — be that in location, size, style, or amenities.

• Your success depends on your local housing market. Your home-selling prospects largely depend on the state of your local market. If things are slow and there’s not much demand for housing in your area, it could take a while to sell your house. You could also lose money on the sale.

• If you have a low mortgage rate, it could be a costly choice. If you have one of the bargain-basement mortgage rates offered around the height of the pandemic (think rates of 2.5% to 4%), then selling your home and buying a new one will likely mean a big increase in your mortgage rate. This could cost you significantly more in interest over the long run.

• There are many up-front fees and expenses. Not only will you likely need to make repairs, but real estate agent commissions, settlement services, and other fees make up the costs of selling your home. Make sure your sales proceeds will be enough to cover all this.

Remodeling has its own set of pros and cons to think about. Here’s what to consider before choosing this option.

• You get to stay put. You can keep the home you’ve grown attached to, stay in your neighborhood and school district, and bring your existing property more in line with your current household needs.

• Add value to your home. If you make valuable improvements to the home, your property may increase in value. This could mean more profits if you do eventually decide to sell.

• You can keep your low mortgage rate (if you have one). If you’ve locked in one of the ultra-low pandemic-era mortgage rates, remodeling will help you keep your rate. (Taking on a new home loan would risk that rate.) If you take out a home equity line of credit (HELOC) or home equity loan to pay for the renovations, those come with separate monthly payments with their own interest rates.

• There can be many inconveniences. Remodels — especially large projects such as adding on a room or redoing your entire kitchen — can be disruptive. It’s loud, there are contractors in your home regularly, and it can be difficult to go about life as normal while the renovations are in process.

• Funding can be challenging. While home equity loans and HELOCs can be great, low-interest ways to finance home projects, they do come with a monthly payment — one you’ll owe in addition to your main mortgage payment each month. Other options, like credit cards and personal loans, can be expensive and carry high interest rates.

• Using your home equity could put you at risk of foreclosure. If you use a home equity loan or HELOC and don’t make payments, you could lose your house. The most crucial part of remodeling your home is ensuring that you can afford the costs, whether it’s out of pocket or by taking on a second mortgage or other loan.

MORE: See our list of the best home equity loan lenders.

Both remodeling and moving can be beneficial, but the right move depends on your personal situation, your local housing market, and other factors. To decide which is the better fit, you should try the following:

• Compare the costs: Look at the full scope of costs for both. What would it cost for your ideal renovations, including building materials, labor, permits, and more? Compare that to the costs of moving, which include factors such as closing costs, agent commissions, and renting a moving truck, and see which works with your budget. Keep in mind that, generally speaking, you should spend no more than 30% of your home’s value on renovations.

• Consider your goals and timeline: Know what your ultimate goal is. Do you want a bigger house? To live in a new school district or closer to your job? Do you need extra cash to invest or pay off debts? Moving is typically best if you’re looking for a new location or want to cash in on your equity, while remodeling may be better if you want to stay in your current neighborhood and can afford to wait on renovations to be completed over time.

• Research your local real estate market: The housing market you’re in should play a big role in your decision. Study up on home sale trends (e.g., pricing and how fast homes are selling), as well as the current mortgage rate trends. You should also consult a real estate agent. They can help you determine whether selling your home is smart in your market or remodeling may be the better investment.

You should also consider what sort of stress and schedule you can handle. Selling your home will require cleaning, decluttering, and occasionally leaving the house for showings. However, remodeling will likely mean on-site contractors and construction for a while. Talk with other household members about what you’re all comfortable with.

The 30% rule states that you shouldn’t spend more than 30% of your home’s current value on a remodel. This can help ensure you get a return on your investment and that you don’t financially overextend yourself.

The answer depends on the costs of labor and materials in your area, the local housing market where you’d be moving to, and the type of house and renovation you’re considering. Contact a local real estate agent to help you understand the unique conditions of your market.

That depends on your renovation plans, as well as the costs of labor and building materials in your area. According to The Home Depot, the average cost for just a kitchen model ranges from $24,000 to $136,000.

You can typically live in your house during a remodel, but you may experience some frustrations and disruptions. Talk to your contractors about setting up a construction schedule that works for your household.

Laura Grace Tarpley edited this article.