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My wife and I live in Toronto, and would like to move to a bigger house for family planning reasons. We'd like to stay in our current neighbourhood, so that we can continue to walk to work. The question is how to upsize into a bigger house without carrying too much mortgage?

The longer we stay in this house, the more equity we build up for a larger down payment. On the other hand, I'm assuming that the longer we wait, the more likely interest rates will rise from our current lows, and the more likely this buyer's market will return to a seller's market, effectively offsetting my larger down payment.

Any suggestions? Are my assumptions about future conditions valid?
 

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My wife and I live in Toronto, and would like to move to a bigger house for family planning reasons. We'd like to stay in our current neighbourhood, so that we can continue to walk to work. The question is how to upsize into a bigger house without carrying too much mortgage?

The longer we stay in this house, the more equity we build up for a larger down payment. On the other hand, I'm assuming that the longer we wait, the more likely interest rates will rise from our current lows, and the more likely this buyer's market will return to a seller's market, effectively offsetting my larger down payment.

Any suggestions? Are my assumptions about future conditions valid?
Wait a big longer. As unemployment ramps up, you will eventually get more house for your money. The Canadian RE market can't sustain 60k job losses per month for a long period of time.

http://www.yourhome.ca/homes/article/622882

http://www.cbsnews.com/video/watch/?id=4668112n
 

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I'm not sure if you are looking for some kind of magic answer? If you want a better house then you have to pay a lot more money for it. If you subtract all the fees from the sale of your current house (~8%) then you will buy something for at least $100k more than that, so unless you have that kind of $$ sitting around then it will be added to the mortgage.

Of course if the location of the new house is not quite as good (but in the same area) or the condition isn't as good then the difference might be less.
 

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I agree FP, that a bigger house will cost more money. If I sell my house and buy a bigger house today for example, I'll have a smaller down payment but a really good interest rate. However, if I wait, I'll have a bigger downpayment, but it's likely that interest rates will be up, and the market will be a seller's market again, making that same house that I want to buy more expensive.

For example, a $50K downpayment on a $500K home with a mortgage at 3.85% will have the same mortgage payment as a $100K downpayment on the same home with a 5% mortgage rate.

What would be the more financially sound approach?
 

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The first question you should ask yourself is "can I afford the monthly payment if rates go way up when my first renewal comes up". If your mortgage payments become unaffordable if your interest rate in 5 years is 10%, forget it. I'd even think twice if you couldn't afford 15% interest, because there's a chance it might go that high.

If you can make the payments no problem no matter what the interest rate is and a move better suits your lifestyle, then get all your ducks in a row, get a mortgage preapproval, and be ready to move when a perfect house in the area you want comes up for sale.
 

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As was mentioned, you have to be able to afford the house.

Depending on your income level, 10% down on a $500k house is stretching it unless you are earning between $150-$200k/yr.

But, assuming you can afford the house -

I think it depends how far along you are in your mortgage.
If you pay $1000/month now, and 20% is interest payment, and 80% is principle, you are gaining $800 per month towards the new home.

If you buy the new house, and your payment is $1500/month, (despite low interest rate) you'll still be paying a higher % of interest: principle early in your amortization - so say 80% interest: 20% principle.

In this situation, you're building up home equity more rapidily by staying where you are despite the higher interest rate.
 

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Hello:

I wouldn't worry too much about things returning to a seller's market. Once you're comfortable with the payments, etc. as mentioned by the other posts...then take the plunge. You never know 100% where the market is headed.

If interest rates rise, you can also make the argument that buyers cant afford as big of a mortgage; resulting in downward pressure on prices...or that if interest rates rise, its a sign of economic growth/recovery and prices will rise, etc. etc. My point is, don't read too much into the headlines.

If you believe in your fundamentals and your financial ability/comfort level...that's all that matters
 

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mhd, we just did this exact same thing two years ago. We were in a smaller house, then I got pregnant, and well...

If you go the traditional route where you buy and sell at the same time, then you have the problem that it is always either a buyer or a sellers market. Being in both roles at the same time means that you will be both negatively and positively affected by the siutation.

We bought our current house near the top of the housing boom. But as my husband likes to say whenever I bring this up, we also SOLD our old house at the height of the boom.

One way to get out of this vicious cycle is to sell your home when it is a seller's market (not right now). Rent for awhile until the prices settle down. Then buy a better house at a lower price.
 
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