A new Canada home purchase with life constantly changing from your career to your family is all part of the process as we climb up the home buying ladder. With these life changes, your current home may no longer be working for you. Whether you’re cramped in your tiny apartment or have a little one on the way, it may be time to look at moving on up!
Before considering the move to a larger home, there are some things to consider. For instance, whether or not you can afford to make the move and buy something bigger.
Upsizing your Home
If you are wanting to upsize, and are doing so during your current mortgage cycle, you may face a mortgage penalty. As a result, you will have to go through the entire qualification process again. Keep in mind, there may be penalties depending on the term in your mortgage. Some are portable, which would make the transition smoother but you would need to check your mortgage agreement.
If you are unable to port your mortgage, you would need to re-qualify for a new mortgage. This would be done at the current rates offered by lenders and would be subject to government changes, including recent “stress test” rules.
The Canada Mortgage Stress Test
If it has been a while since you bought your first home, you may be unfamiliar with the “stress test”. It was introduced in October 2016 for insured mortgages (down payments of less than 20%). Then, as of January 1, 2018 was updated to include all mortgages, regardless of down payment percentage. This test determines whether a homebuyer can afford their principal and interest payments, should interest rates increase. It is based on the 5-year benchmark rate from Bank of Canada or the customer’s mortgage interest rate plus 2% – whichever is higher.
The next thing to consider aside from re-qualifying, are fees and taxes. There may be large Property Transfer Taxes and you would also pay realtor fees on the sale of the home you are leaving behind. These fees are typically between 2-5% percent of the home’s selling price.
Associated Costs with your New Purchase
Beyond the costs associated with the sale of your current home and purchasing a larger residence, the costs of home ownership rise in proportion to the home you live in. If you are moving up from a condo to a single-family home, you will save on strata but will become responsible for all of the maintenance of your home. As a rule, it is best to save 1% of your new home’s purchase price, per year, for maintenance. For instance, if you purchase a $600,000 new home then you would want to ensure $6,000 a year in savings.
Making the move to a larger home is both exciting and daunting! However, it is entirely doable with the right preparation! No matter what stage you are at with your home, a mortgage professional can help. Not only can they offer expert advice, but guidance as you move on up the property ladder. They also have your best interests in mind and will work to ensure future financial success so you are setup for success.