Methodology: exactly how the Renovate vs Move model works

What the model compares

The calculator compares two mutually exclusive futures for one household starting today. In the renovate path, the household keeps its current home and mortgage, pays for a renovation in cash, with a second loan, or both, and lives in the improved home. In the move path, the household sells the current home at month 0, pays off the existing mortgage and all selling costs, buys a replacement home with a down payment and a new mortgage, and pays the buying and moving costs. Both paths then run forward month by month for 30 years, and the comparison is read off at the horizon you choose.

For each path and each month the simulation tracks: home value, mortgage balance, renovation debt, cash leaving the household, interest paid, principal paid, an opportunity account, and equity. The engine is deterministic, synchronous and has no external data dependencies; the same inputs always produce the same outputs.

Month-by-month mechanics

Appreciation. Home value grows geometrically each month at a rate chosen so that twelve months of growth equal the stated annual rate: monthly factor = (1 + annual rate)^1/12. Each home has its own appreciation assumption.

Loans. Every loan is a level-payment amortizing loan. Payment = P × r ÷ (1 − (1 + r)⁻ⁿ) with r the monthly rate and n the term in months; a zero-rate loan amortizes linearly. Each month, interest = balance × r, principal = payment − interest (never more than the balance), and the balance falls by the principal. You may override the existing mortgage’s payment; an override below interest-only is clamped so the balance cannot grow.

Carrying costs. Property tax and maintenance are percentages of the current home value, so they rise with appreciation. Insurance and HOA are dollar amounts; insurance is escalated by the same appreciation factor, HOA is held flat. Post-renovation increases in tax, insurance and maintenance are added from the month the project completes.

Opportunity account. Each path carries a running account that starts at minus the upfront cash and each month is multiplied by (1 + monthly opportunity rate) and reduced by that month’s cash outflow. It is therefore the compounded value of all cash the household has spent on that path, as a negative number.

Equity. equity_t = homeValue_t × (1 − exit cost %) − mortgageBalance_t − renovationDebt_t. The exit cost percentage is zero on the default hold basis and equals commission plus seller closing percentage when the sold-at-horizon option is switched on.

The financial-position formula

At any month t, the financial position of a path is its equity plus an opportunity credit awarded to whichever path has consumed less household cash:

position_R = equity_R + credit_R
position_M = equity_M + credit_M

credit_R = max(0, oppAcct_R − oppAcct_M)
credit_M = max(0, oppAcct_M − oppAcct_R)

advantage = position_R − position_M
          = (equity_R − equity_M) + (oppAcct_R − oppAcct_M)

Because the two credits are mirror images, the advantage reduces to the difference in equity plus the difference in the opportunity accounts. A positive advantage favors renovating; a negative one favors moving. The advantage is computed at the end of every year for 30 years, which produces the year-by-year chart and the time break-even.

Principal versus interest

Principal is never treated as an expense. It leaves the household’s cash, so it reduces the opportunity account, but it reduces debt one for one, so it raises equity by the same amount. Interest is a pure cost: it reduces the opportunity account and does nothing for equity. This is why a larger mortgage payment on the new home is not simply “more expensive”: the part that is principal is retained as equity, and only the interest and the forgone return on the cash are lost. The lock-in guide shows the consequences.

Renovation: cost, funding and value

hardCost = cost × (1 + contingency %). softCost = design and engineering + permits + temporary housing + furniture + landscaping. The cash share of hard cost is 100% for cash funding, 0% for HELOC or home-equity loan, and your chosen share for a combination. financed = hardCost × (1 − cash share); upfront cash = hardCost × cash share + softCost. The financed amount becomes a second amortizing loan at your finance rate and term; its interest counts as financing cost and its balance reduces equity.

valueAdded = hardCost × valueRecoup %. Soft costs are excluded from the base because they do not add to the structure. The value is credited to home value in a single step in the month the project is scheduled to complete (duration in months, minimum 1); before that month the home carries the renovation debt without the added value.

Move: sale proceeds and purchase cash

sellingCosts = salePrice × commission% + salePrice × sellerClosing% + prelistingCosts
netProceeds  = salePrice − sellingCosts − existingMortgageBalance

buyerClosing = targetPrice × buyerClosing%
purchaseCash = downPayment + buyerClosing + movingCost + immediateRepairs + furnishing
newLoan      = max(0, targetPrice − downPayment)

upfrontCash_M = purchaseCash − netProceeds   (negative = the move frees cash)
transactionCosts_M = sellingCosts + buyerClosing + movingCost + immediateRepairs + furnishing

The move path’s opportunity account starts at minus upfrontCash_M. If the sale frees more cash than the purchase requires, the account starts positive and the move path earns the opportunity rate on the surplus.

Hold basis versus sold at horizon

By default equity is measured on a hold basis: home value minus debt, with no selling costs deducted at the horizon. If you switch on “apply exit costs at horizon,” both homes are valued net of commission plus seller closing percentage at every month, which is the right comparison if you expect to sell either home at the end of the period. The option is applied to both paths or neither, never to one.

Break-even solvers

Each solver sweeps one input over a range, evaluates the advantage at the horizon on a coarse grid, finds the first sign change, and bisects between the bracketing grid points (up to 40 iterations) until the interval is narrower than the tolerance. Grid-then-bisect is used because amortization and appreciation can make the advantage mildly non-monotonic in some inputs.

Mortgage lock-in effect

The lock-in effect isolates what giving up the existing rate costs. The move path is re-run with the new mortgage priced at the existing rate and everything else unchanged. The engine reports four figures: the difference in monthly principal-and-interest on the new loan (actual rate minus existing rate, same balance and term); the additional interest paid over the horizon; the difference in the remaining balance at the horizon; and the total effect, which is the base advantage minus the advantage under the hypothetical rate. The share of the advantage explained by the rate is total effect divided by the absolute advantage, reported only when the advantage exceeds $1,000. If the current home has no mortgage, the effect is marked not applicable.

Sensitivity tests

Nine assumptions are perturbed one at a time, down and up, by the fixed amounts below. For each, the engine reports the advantage at both ends, the swing between them, and whether either end reverses the sign of the base advantage.

Stability labels

The stability label is a rule, not a probability. If the absolute advantage is below the close-call threshold the label is Close call. Otherwise it depends on how many of the nine tests flip the sign: none gives Strong result; one gives Fairly stable; two or three give Moderately sensitive; four or more give Highly sensitive. The “what would change it” list names each flipping test and the direction that flips it.

Verdict and the close-call threshold

closeCallThreshold = max($10,000, 2% × current home value). The verdict is Renovate when the advantage exceeds the threshold, Move when it is below minus the threshold, and Too close to call otherwise. Estimates of this kind are rarely accurate to better than a couple of percent of home value, so a smaller gap is not treated as a signal.

Scenario presets

Three presets re-run the comparison with bundles of assumption changes, so you can see the result under uniformly cautious or uniformly favorable inputs. The exact changes, read from the engine, are:

Note that the conservative preset is not guaranteed to reduce renovating’s advantage: lowering appreciation on both homes hurts the more expensive home more in dollar terms, and raising the new mortgage rate hurts the move path, so a renovate-leaning result can widen under conservative assumptions.

Lifestyle feasibility

The calculator asks why you want a change and whether each reason can be addressed by renovating the current property. Reasons are classified as solvable, partially solvable, or not solvable; the classification is fixed and listed below. Feasibility is Solvable by renovating when no selected reason is unsolvable; Points to moving when every top priority (or, if none are marked, every reason) is unsolvable, or when at least half of the priorities are unsolvable and nothing selected is solvable; and Mixed otherwise, including when no reasons are selected. Low self-rated tolerance for construction or for moving adds a note but does not change the classification.

Default assumptions and sources

Every default that comes from outside data carries its source and date in the engine itself, and this table is generated from that object so it cannot drift from what the calculator uses. All defaults are editable. National averages are a starting point, not a description of your market.

Other seeded values when you start from a blank form: the existing mortgage rate defaults to 3.25% with 25 years remaining, the mortgage balance to 55% of home value, the replacement price to 140% of home value, the renovation cost to 30% of home value, design and engineering to 8% of renovation cost and permits to 1%, renovation duration to 8 months, renovation financing to a 50/50 cash and HELOC split over 15 years, the new mortgage to 30 years, and the down payment to the lesser of net sale proceeds and 80% of the replacement price. Each is a placeholder to be replaced with your own figures.

Input handling

Inputs are sanitized before simulation so the engine can never produce undefined results: non-numeric values fall back to safe defaults, rates are clamped between 0% and 30%, appreciation between −20% and +20%, the horizon between 1 and 30 years, and the down payment to no more than the price. Separately, the engine issues warnings for values that are legal but suspicious: negative equity, value recoup above 100%, renovation cost above home value, rates above 12%, or an opportunity rate above 12%.

A worked example

The calculator’s test fixtures include six scenarios (A through F) whose verdicts are not hard-coded; the unit tests assert mathematical properties and the engine decides. Scenario A is reproduced here from the live engine.

Limitations

The model is a deliberately bounded financial comparison. It does not model income tax or the mortgage-interest deduction; capital-gains tax or the Section 121 exclusion ($250,000 single / $500,000 married under current law); private mortgage insurance; refinancing either loan during the horizon; rent-back or bridge arrangements; inflation of HOA dues or of dollar-denominated repair costs beyond appreciation; regional differences in closing costs and transfer taxes unless you enter them; the time value of a renovation’s disruption or a move’s; or any change in income, household size or interest rates after month 0. Appreciation and opportunity return are single constant rates, not distributions. Recoup percentages describe national resale averages, not your street. Every output is an estimate conditioned on the inputs you supply.

What this is not

Educational estimates based on your assumptions. Not financial, mortgage, tax, legal, appraisal, construction or real-estate advice. It is not an appraisal, a contractor estimate, a loan quote or a recommendation to buy or sell property. The calculator does not know your local market, your contractor’s reliability, or your family’s needs, and it makes no attempt to. It is designed to make the financial half of the decision explicit and checkable so that you can spend your attention on the half it cannot see. See our terms and disclaimer and about page.

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