| Selling

We get that homeownership is a little scary right now and that, for some, homeownership has lost its luster. This is especially true if you were planning to sell your home this year amidst higher interest rates and less-than-enthused buyer sentiment. However, we’re here to tell you that if you understand how to make the most of the market, selling isn’t as glib as you think. It might be hard to believe, but it is possible to manage the whole sell-and-buy thing and still come out on top despite current interest rates and dicey market conditions. Here’s how. 

Understand Your Home Equity

First, any time you sell property, you need to understand your home equity. Home equity is how much your home is worth, based on the current market value, less your current mortgage balance. For example, if you bought a home in 2018 and your mortgage was about $790K, based on the average interest rates at the time, your mortgage payments would have been about $4630, bringing your balance to around $693K today.  Current house prices are $1.18 million, which means your home equity would be about $487,000. 

Now, even if you buy a house for the average rate of $1.18 million (which we would say is a high estimate because we’d use a smart offer and budget strategy to get a better price) after an average of 3% for closing costs, you would have a nice downpayment of about 38%. That means your mortgage would be about $728,400. Your monthly mortgage payments would be $3910 per month at the average interest rate today. So, you come out ahead with lower monthly payments, saving about $720 a month. 

Now, so as not to mislead you, remember that paying more in interest means you’ll take longer to pay the mortgage. That said, we should see interest rates drop so you can get a better rate when your mortgage is renewed, typically in five years. So, in theory, within five years, you’ll most likely pay even less for your monthly mortgage payments and catch up respectably.

When won’t selling and buying now see you come out on top?

  • If your home equity is not enough to provide a down payment that brings your numbers down instead of up
  • You can’t pass the mortgage stress test based on current interest rates 
  • Your credit isn’t what it used to be, so banks are going to charge you a higher interest rate
  • The house type you want is way more than you’re willing to pay 

Warning: Housing prices will continue to rise, so while you might get more for your home by waiting, you’ll also pay more for your new home. 

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Consider a “Move, Move”

By move, move, we mean out of Toronto. You’ll get more bang for your Loonie outside the GTA, but also in lower-demand neighbourhoods in the GTA. For example, the average home in Etobicoke is $1.7 million, but in Scarborough, it’s more than half the cost at $650,000. Moving further out to one of the latest trendy spots like Hamilton, you’ll pay about $830,000 and get an absolute stunner of a home. So, where you move is very important if you want to come out on top.  

A real move, move completely outside the GTA, offers many exciting options, ideal if you’re retiring or working from home. Some top attractions right now are just outside Ottawa, a first-class city smaller than Toronto but equally funky and exciting. For example, Nepean, just west of Ottawa, averages about $701,987. If you’re not picky and feeling more adventurous, you’ll only pay about $259,000 in the suburbs of Windsor, like LaSalle. Or you can choose a lovely resort area like Wasaga Beach, where homes are about $325,000. So, consider your lifestyle and options to see where you’ll get the most house for your investment and be able to “do you” without sacrificing too much.  

When won’t move, moving see you come out on top?

  • You aren’t retiring or can’t work from home
  • You can’t bear the idea of such a drastic lifestyle change
  • Your home equity still doesn’t make a move, move affordable

Warning: A major move is a major adjustment, so carefully balance what you’ll lose against your financial gains. 

Ask Your Bank About Porting Your Mortgage

Because you’re selling and then buying, you can ask your lender if you can bring your current mortgage along. This is called “porting” your mortgage, an excellent option when interest rates are less than favourable. Porting keeps the same terms for your mortgage with your current lender. However, you have to transfer what you owe on your existing mortgage to your new one, so this won’t work if you carry a large balance.  

Porting your mortgage takes the balance of your existing mortgage and tacks that onto the money owed for your new home. So ideally, you want your current interest rates to be much lower than today’s AND not have a whopping balance that would make the money you owe unmanageable. Remember that your mortgage balance is traditionally paid when you sell your home, and then the leftover equity goes toward your down payment. This plan generally goes off the rails with porting. 

So, what would porting look like?

First, you’d need to speak to your lender, as not all offer this option. Second, there are specific criteria you need to meet to qualify for porting a mortgage. This is what your lender considers:

  • Mortgage type: Ported mortgages only work with fixed interest rates. If you have a variable rate right now, porting defeats the purpose of porting, as you’ll have to lock into current high rates.  
  • New home price: If your new property costs more or much less than your existing loan, you’ll likely run into issues with the lender. You also need to know your new home price, which basically means you’ll need to have a home on offer before selling your current home. 
  • Current mortgage: If the home you’re purchasing is more than you owed on your old home, you’ll have to requalify for your original mortgage. Lenders will check your credit and assess whether your income passes the stress test on the new amount. 
  • Down payment: Remember that you maintain your current mortgage balance and still need your down payment for your new home. Most lenders only give you 30 to 120 days to complete the porting process which means the pressure is on. Since you need to know the new house price to qualify, this creates a bit of an issue, as you usually need to sell to get your downpayment.  In this case, you need to ask the bank if you can “bridge” financing for your new house, which means you use home equity for your down payment. This also means the amount of the mortgage is increased because you now owe the lender that equity. 

When won’t porting see you come out on top?

  • You have bad credit, your credit score has dropped, or your monthly debt-to-income ratio has risen since you got your mortgage
  • You won’t requalify for your original mortgage for various financial reasons such as a lower income, not having a steady income because you now freelance, etc.
  • You have a variable interest rate on your current mortgage
  • Your new property costs much more or at least 25% less than your existing mortgage
  • You no longer qualify based on the new guidelines of the mortgage stress test, or lender’s criteria
  • Your new home does not meet the eligibility requirements 
  • You have a Home Equity Line of Credit (HELOC) 

Warning: Sometimes, you can actually get a better rate with a new mortgage from a different lender. So, weigh all your options to make sure you make an informed decision. 

Speak to Your Lender About Other Options

Now is not the time to make decisions without professional financial advice. You should speak to your bank before you consider selling if you plan to buy your next home at the same time. They can offer advice based on your finances and current mortgage situation with possible ways to get a better mortgage rate. For example, if porting isn’t going to work, they might discuss a blended mortgage. In this case, the lender combines your existing mortgage rate with the current best rate they can offer to create a “blended” rate. It’s kind of like the average between the two. This usually reduces the rate to something more manageable and is offered without penalties. It’s not the best rate, but it will be better than applying for a new mortgage, breaking your mortgage to go with another lender, etc. 

When won’t speaking to your lender see you come out on top?

They can be a little biased and not offer a completely objective picture which means you might not get the best mortgage. 

Warning: As mentioned, your lender is driven by their own best interests. Speaking to a broker or financial advisor will provide a more objective opinion, so you don’t miss out on better options available with other lenders. They consider what your current lender is offering and will weigh it against other possible opportunities to ensure you make the best choice. 

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Ask the Best Toronto Real Estate Team

Speaking to the best Toronto real estate team will lay all the cards on the table so you can make an informed decision. As mentioned, lenders can be biased, so the information they offer should be considered along with some solid, objective real estate advice from a team like us. We can:

  • Assess your current home value
  • Help determine your home equity 
  • Discuss where you’ll find the best housing options to meet your needs based on your budget and the current market 
  • Recommend neighborhoods you might not have considered
  • Discuss types of home options that might suit your needs 
  • Consider your potential financing challenges

If selling now is an absolute must, we can guide you on where to begin, price your home fairly, prepare your home for sale, and ensure you get the best possible price. We can also balance the sale with the best possible home purchase, at the best possible price, in the best possible area, or help you find a rental. In other words, we help things work in your favour regardless of your situation. 

When won’t speaking to us help you come out on top?

We might not be the right fit, but this hasn’t happened yet!

Warning: Working with The Christine Cowern Team could result in reduced stress, financial reward, and complete satisfaction. 

Call The Christine Cowern Team at 416.291.7372 or email us at hello@christinecowern.com with any questions you have about selling and Toronto real estate. We’d love to work with you! 

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