One of the biggest trends for Canadian homeowners in 2021 are move-up buyers looking to purchase a home that offers more space for them and their families. In fact, this is true for a whopping 29% of Canadians! Unsurprisingly, this demographic is made up mostly with Canadians under the age of 40 and with growing families.
If you’re someone who’s desperate for a home with more space because you’re feeling cramped or are expecting to expand your family, there are a few factors to consider in qualifying for a new mortgage before starting the process of looking for another home.
Your Current Mortgage
If you want to move to a bigger home, as a mortgage broker we can work with your existing mortgage lender and give you a comparison of other options on the market. In most cases, your current mortgage can be taken to another home without a penalty. However, what we’ve found is sometimes paying a penalty to start a new mortgage at a lower rate has a long-term benefit. The main benefits include lower payments and often less interest paid over the term of the mortgage.
If you decide that it’s best to “port” your current mortgage and take it with you to the next house, you still need to requalify for the new mortgage. It’s a misconception to think that if you currently have a mortgage and have a good payment history that you’ll qualify easily for a new mortgage. That’s not the case.
If, for example, you’ve started a new job or have become recently self-employed, your current mortgage lender may not be able to approve you for the new mortgage. That’s why it’s even more important to start the mortgage pre-approval process when you first consider moving. The good news is that mortgage brokers work with multiple lenders. If one mortgage lender declines your application, another one will likely approve it.
Requalifying and the “Stress Test”
Since January 1, 2018, the stress test has been required for ALL mortgages – regardless of your down payment amount. This test is designed to determine 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.
Regulators are currently discussing possible changes to qualifying given the heated real estate market. Don’t assume that if you’ve had a mortgage before, you’ll easily qualify for another one. The best advice we have for you is to start early with the pre-approval process, update your mortgage application and be prepared to present two years of income tax information for the pre-approval.
The Cost of Upsizing
Once you have considered the mortgage-related aspects of upsizing to a larger home, the next thing to look at are the costs associated with making this change. There will be a provincial sales tax that you will need to pay on your closing date for your purchase and real estate commissions to pay on the sale of your existing home.
As a part of our analysis, we ensure that there are no unexpected costs and plan things out carefully for you. We review all the costs upfront with you and answer your questions.
Making it Easy and Next Steps
We make it easy to qualify for a new mortgage because we use secure technology so you can easily share your confidential information with us. Paper mortgage applications are a thing of the past. We also don’t recommend emailing confidential documents for a mortgage pre-approval. As a result, we have a secure web portal where you can upload all your documents. We meet virtually online to ensure everyone is protected against Covid and all documents are signed electronically. You’ll love working with us as it’s smooth, stress free and easy to navigate through the use of technology.
Book your 15 minute introductory online meeting with us at /contact-us/