We have a $1,500 mortgage and paid-off cars but our small house is killing our family happiness: should we upgrade now or wait?

"“We got to get the engine right first” before adding “the hubcaps and the accessories of life.” Luke owns a house worth close to $400,000 with a 3.25% mortgage rate and a $1,500 monthly payment, plus paid-off cars. He has a growing family squeezed into a house that no longer fits, and a side business he wants to scale into full-time income."

"Trade the cheap house for a bigger one now and you swap a sub-inflation fixed cost for a payment built at today's 10-year Treasury yield near 4.5%, which drives mortgage rates. That is the runway you were going to use to start a business, gone. My verdict: Bo is right, and the math is not close: hold the house. Build the engine. Then upgrade."

"Luke's $1,500 monthly payment on a roughly $400,000 home at 3.25% is the kind of fixed cost you cannot buy back once you give it up. Refinancing a similar $400,000 loan at today's prevailing 30-year rate (roughly 2 percentage points above the roughly 4.5% 10-year) would push principal and interest well above $2,500 a month. Move up to a $600,000 house at that rate and you are looking at a payment around $3,800 before taxes and insurance."

"Bo warned Luke it will take 3 years to get the business “back to what you were making beforehand” and that he needs enough “nutrition through cash and savings to get it through that season.” Strip $2,300 a month out of the household for three years and you have removed roughly $82,000 of cash cushion from the exact window the business needs it most. A bigger living room costs you the startup cap"

A low mortgage payment on a roughly $400,000 home at 3.25% creates a fixed cost that is difficult to replace. Trading up now would replace that sub-inflation fixed cost with a higher payment driven by today’s higher Treasury yields and mortgage rates. Refinancing or moving to a larger home would raise principal and interest substantially, creating an additional monthly burden. That added cost would reduce available cash during the period when a side business needs funding to recover and grow. Losing that cash cushion during the startup window can derail the business plan. Holding the house preserves the “engine” while the business is built, then housing can be upgraded later.

Read at 24/7 Wall St.