If there is one thing that is certain in today's housing market, it is that the housing market is uncertain. Prices continue to rise, and the stories of bidding wars and houses selling above asking are rampant. Mortgage interest rates are also rising after settling at all-time lows for the past few years. What's a homeowner to do if you are not completely happy with your current housing situation? Is it a good time to sell and upsize? Or is the power move to stay put and renovate? It's a lot to think about and consider. As mortgage professionals, we would never suggest which option is better. Still, we can offer additional information to help you make the best decision for you and your family.
A New Home Can be an Investment
The first thing you should think about is your financial situation. Buying a home can be a significant investment in your future. Real estate is generally considered to be a solid long-term investment that rivals securities-based investments over time. However, there are costs to buying and selling. The obvious ones are selling and legal fees, land transfer tax, and mortgage costs. Some experts believe that Canada is in the midst of a housing bubble which could eventually burst, leading to falling property prices. Even if it doesn't, high home prices erode your buying power. Buying a home in the midst of a hot housing market may not necessarily give you the investment returns you're looking for.
Changing Your Mortgage Situation
Mortgage rates increased in April 2022, and they are expected to continue to rise throughout the rest of the year in an attempt to stave off high inflation. Therefore, getting a new mortgage will mean your interest costs will be higher than they would have been a few months ago. Getting out of your existing mortgage also has a cost. Don't forget that discharging your existing mortgage early in favour of a new one may incur additional fees and penalties that can add up to thousands of dollars.
Renovation Challenges
During the pandemic, as people spent more time at home, the cost of home renovations skyrocketed and finding contractors to do the work became a challenge. Even for the do-it-yourselfers, the cost of materials like lumber and drywall rose dramatically as demand and supply chain issues cropped up. Inflation is making transportation and manufacturing more expensive, contributing to the cost of building materials. However, renovating your home may end up being less expensive than the cost of selling and buying a new home.
Funding for Renovations
Most homeowners in good standing with their lenders have options when it comes to funding home renovations - even very significant ones. You may be able to renegotiate your mortgage for a similar interest rate and no breakage fees. Or it may make more sense for your financial goals to secure a home equity line of credit which has added flexibility to borrow and pay down the balance. However, you may not be able to get everything you want in a house by renovating it. Zoning restrictions and by-laws may limit what you are able to do. And, if the location isn't right, no amount of expansion or renovation will fix it.
Ultimately you have some soul searching to do before you decide what you want, where you want it, and what you are willing to pay for it. Buying a home is an inherently emotional decision. However, because of the financial impact, it should also be made with a healthy dose of common sense and thought. Whether you decide to upgrade your existing home or move to a new one, talk to your mortgage broker first. You’ll get the scoop on the impact of breaking an existing mortgage, and interest rates on a new mortgage, refinancing or a home equity line of credit.