Mortgage Matters: Each situation is unique—consider these factors before you make a decision
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The path up the property ladder is different for everyone, and whether to buy or sell first depends on your unique circumstances. In Canada’s evolving real estate markets, both buying and selling a home are very personal decisions. Add buying and selling at the same time, and the process becomes even trickier; it involves extensive research and a clear understanding of all the steps involved, especially if you have a mortgage in place.
Here are some things to consider before making a move:
Should I sell first?
The upside of selling first is that you will know how much money you have to work with, and it’s also easier to get new financing when you need it. However, if there are delays or challenges finding the right new home for you, you may incur additional rent and storage costs in the interim. The ability to port or transfer your existing mortgage to the new property that you purchase comes with a limited time frame (usually 90 days). In other words, the closing date of the existing property must be within 90 days of the closing date of the new property.
Should I buy first?
In this case, you will have time to plan your move and get your current home ready to sell. However, closing dates on both the purchase and sale may not line up, and if your home doesn’t sell for a while, you’ll be stuck with two mortgages, the burden of two mortgage payments, and unable to port the mortgage to the new property.
Add a contract contingency
Whether you’re buying or selling, work with your Realtor to try to add a contingency to your contract that lines up the closing dates to bridge the in-between period. This isn’t always possible, since it depends on the market and whether the buyer/seller is willing to agree to an extended or reduced period of time.
Know the markets
Research prices in the areas where you’re buying and selling. Does the market favour buyers or sellers? This is the best way to decide which move to make first. As a rule of thumb, you want to sell first in a buyers’ market and do the contrary in one that favours sellers.
Consider rental revenue
Research the rental market in your area and calculate the cost-versus-profit ratio of renting out your home to tenants, rather than selling it. You may find this to be financially advantageous, and real estate could be a great way to diversify your investment portfolio.
Moving soon? Next steps
If you will be moving in the near future, here are some steps that you can take to ensure you make the most of your mortgage options:
Firstly, determine whether your mortgage has a port option. Start by checking your bank’s website; it should have a mortgage prepayment charge calculator. Use the calculator to see whether it’s in your best interest to break your current mortgage or move your mortgage to a new property. You will want to know what the prepayment fees are and how much interest you would save by keeping your lower rate. Also, you can ask to speak to a representative to obtain your mortgage prepayment charge and have them complete the calculation for you.
RBC Regional Manager, Residential Mortgages
Follow Kevin on Twitter@RBCKevinLutz