Canadian mortgage / selling / relocation / timing question
April 16, 2017 10:08 AM Subscribe
My wife and I are trying to make some plans for the future, but I don't really understand what are the important variables to consider. Mortgage repayment timelines, building costs, and more are confusing me.
The situation: We live in a house in Alberta. The 5 year mortgage renewal is up this June. We want to move to Vancouver Island sometime in the next year or two. We want to buy minimally developed land with the option of putting up some small guest houses in addition to our house that we would build ourselves (subcontracting as necessary for foundation/plumbing/electrical) if we don't find one that is suitable. The guest house idea is important as we are quite likely to have family come to stay for weeks/months at a time. We have some money saved, and I'm trying to figure out a reasonable plan and budget.
With cash in the bank and investments, we have ~$100k saved right now (5 years into this house). Our house was purchased for ~$300k, and we have ~$200k remaining to pay on the mortgage, which is a 5 year closed rate on a (iirc) 25 year mortgage.
If we renew with a new 1-5 year closed rate, I *think* the penalties will be 3 months interest on the overpayment, which *might* be around $3k. Does that sound like the right sort of range? I want to know if the penalties will be less than $1k, less than $5k, or greater than $5k (obvsly you don't know for sure, but I'm trying to imagine the range to expect).
If we sell our house for around what we paid for it (seems likely that it would sell for a bit more, but we wouldn't sell for a loss), that money would close out the mortgage, pay for any closing costs, move our stuff to the island, and some remainder would be used for a downpayment (in addition to savings that we have).
We're looking to buy within about 15km of comox or parksville/nanaimo, and have been watching real estate listings there for a while. We have a decent idea of the market, but are less clear on what is permitted (ie: can we have more than one 'house'). We would work with local realtors to sort that part out. We plan to scout out locations this summer and potentially buy as soon as then, but within the next 2 years if possible.
I don't really understand real estate. I haven't moved a house full of junk across provinces. This is our first mortgage, and we aren't familiar with anything other than calculating payments amongst a bewildering array of options.
We don't have work lined up, but we are both reasonably confident about finding work quickly, and will save at least 4 months of estimated expenses in addition to any other planning we do.
Biggest questions:
Do we select a higher-interest short term mortgage to avoid penalties for selling in the middle of a term?
Is it even likely that we could get a mortgage to build a house on vacant land? I believe that a pre-existing less-than-perfect home that can be renovated as needed would simplify a lot of this, but I'm not really sure.
Since I can't expect anyone to answer these questions fully in their spare time, what are some good resources where I can read about these topics?
What questions am I not asking that I ought to be?
The situation: We live in a house in Alberta. The 5 year mortgage renewal is up this June. We want to move to Vancouver Island sometime in the next year or two. We want to buy minimally developed land with the option of putting up some small guest houses in addition to our house that we would build ourselves (subcontracting as necessary for foundation/plumbing/electrical) if we don't find one that is suitable. The guest house idea is important as we are quite likely to have family come to stay for weeks/months at a time. We have some money saved, and I'm trying to figure out a reasonable plan and budget.
With cash in the bank and investments, we have ~$100k saved right now (5 years into this house). Our house was purchased for ~$300k, and we have ~$200k remaining to pay on the mortgage, which is a 5 year closed rate on a (iirc) 25 year mortgage.
If we renew with a new 1-5 year closed rate, I *think* the penalties will be 3 months interest on the overpayment, which *might* be around $3k. Does that sound like the right sort of range? I want to know if the penalties will be less than $1k, less than $5k, or greater than $5k (obvsly you don't know for sure, but I'm trying to imagine the range to expect).
If we sell our house for around what we paid for it (seems likely that it would sell for a bit more, but we wouldn't sell for a loss), that money would close out the mortgage, pay for any closing costs, move our stuff to the island, and some remainder would be used for a downpayment (in addition to savings that we have).
We're looking to buy within about 15km of comox or parksville/nanaimo, and have been watching real estate listings there for a while. We have a decent idea of the market, but are less clear on what is permitted (ie: can we have more than one 'house'). We would work with local realtors to sort that part out. We plan to scout out locations this summer and potentially buy as soon as then, but within the next 2 years if possible.
I don't really understand real estate. I haven't moved a house full of junk across provinces. This is our first mortgage, and we aren't familiar with anything other than calculating payments amongst a bewildering array of options.
We don't have work lined up, but we are both reasonably confident about finding work quickly, and will save at least 4 months of estimated expenses in addition to any other planning we do.
Biggest questions:
Do we select a higher-interest short term mortgage to avoid penalties for selling in the middle of a term?
Is it even likely that we could get a mortgage to build a house on vacant land? I believe that a pre-existing less-than-perfect home that can be renovated as needed would simplify a lot of this, but I'm not really sure.
Since I can't expect anyone to answer these questions fully in their spare time, what are some good resources where I can read about these topics?
What questions am I not asking that I ought to be?
Ask your mortgage lender, since I don't know if this is normal or not, but in neither of my mortgages would selling the property in the middle of the term counted as breaking the mortgage. They'll charge you a penalty if you just want to get a better term at another bank, but if you sell the property, they're the ones who are going to insist you repay the mortgage.
posted by jacquilynne at 4:37 PM on April 16, 2017
posted by jacquilynne at 4:37 PM on April 16, 2017
We have a decent idea of the market, but are less clear on what is permitted (ie: can we have more than one 'house'). We would work with local realtors to sort that part out.
Don't rely on realtors to tell you what is permitted. They have a huge inventive to bend the truth or handwave over complications to get a sale. Check with a real estate lawyer, if you can't figure it out from reading bylaws and council information yourself.
posted by lollusc at 6:17 PM on April 16, 2017
Don't rely on realtors to tell you what is permitted. They have a huge inventive to bend the truth or handwave over complications to get a sale. Check with a real estate lawyer, if you can't figure it out from reading bylaws and council information yourself.
posted by lollusc at 6:17 PM on April 16, 2017
This is a highly complex situation and you definitely need to speak with a real estate lawyer and/or your mortgage broker. That being said, I have attempted to answer parts of your questions below.
1) Do we select a higher-interest short term mortgage to avoid penalties for selling in the middle of a term?
Not necessarily. Read the terms of your existing mortgage to figure out what will constitute a breaking of mortgage. Mortgage products vary between lenders so best to figure out what your terms are. Generally mortgages can be ported to a new property if you are buying the next property around the same time as selling current one. When you are up for renewal, call the broker and figure out the exact terms. You can also shop around with other lenders at renewal to get the rate/terms you want.
If you want answers now, I'd recommend calling your broker/lender and asking all your mortgage related questions (what constitutes breaking a mortgage, can I port to out of province property, what other products can I switch to at renewal to minimize penalty, etc.)
2) Is it even likely that we could get a mortgage to build a house on vacant land? I believe that a pre-existing less-than-perfect home that can be renovated as needed would simplify a lot of this, but I'm not really sure.
Generally, no. Big banks tend not provide mortgages for vacant land. That would be a construction loan and requirements to qualify for that are different than mortgages. There are alternate lenders that do provide such loans that you can look into. A mortgage broker that covers the area you are looking into buying/building would be able to provide you more details for securing such loans.
Few other things to note:
- You mention that you don't have work lined up. Mortgage rules are being continuously tightened given the current real estate climate here. It will be difficult to get the best rate for a new mortgage without showing ongoing/secured employment. Just something to keep in mind as you make the transition.
- Seconding advice provided above - do not rely on your realtor for credible information. For questions related to mortgages, speak directly with your broker/lending institution. For construction related questions consult a real estate lawyer and/or browse through the bylaws of the municipality in question.
- The sale of your current property might be a net loss if you only anticipate selling slightly over what you paid for it. Assuming you are using a realtor, commissions are around 5% (at least in Toronto) and add another 1% estimate for closing cost. Out of province moving can also be quite expensive so best to figure out an estimate for that now as well.
posted by Danniman at 7:01 PM on April 16, 2017
1) Do we select a higher-interest short term mortgage to avoid penalties for selling in the middle of a term?
Not necessarily. Read the terms of your existing mortgage to figure out what will constitute a breaking of mortgage. Mortgage products vary between lenders so best to figure out what your terms are. Generally mortgages can be ported to a new property if you are buying the next property around the same time as selling current one. When you are up for renewal, call the broker and figure out the exact terms. You can also shop around with other lenders at renewal to get the rate/terms you want.
If you want answers now, I'd recommend calling your broker/lender and asking all your mortgage related questions (what constitutes breaking a mortgage, can I port to out of province property, what other products can I switch to at renewal to minimize penalty, etc.)
2) Is it even likely that we could get a mortgage to build a house on vacant land? I believe that a pre-existing less-than-perfect home that can be renovated as needed would simplify a lot of this, but I'm not really sure.
Generally, no. Big banks tend not provide mortgages for vacant land. That would be a construction loan and requirements to qualify for that are different than mortgages. There are alternate lenders that do provide such loans that you can look into. A mortgage broker that covers the area you are looking into buying/building would be able to provide you more details for securing such loans.
Few other things to note:
- You mention that you don't have work lined up. Mortgage rules are being continuously tightened given the current real estate climate here. It will be difficult to get the best rate for a new mortgage without showing ongoing/secured employment. Just something to keep in mind as you make the transition.
- Seconding advice provided above - do not rely on your realtor for credible information. For questions related to mortgages, speak directly with your broker/lending institution. For construction related questions consult a real estate lawyer and/or browse through the bylaws of the municipality in question.
- The sale of your current property might be a net loss if you only anticipate selling slightly over what you paid for it. Assuming you are using a realtor, commissions are around 5% (at least in Toronto) and add another 1% estimate for closing cost. Out of province moving can also be quite expensive so best to figure out an estimate for that now as well.
posted by Danniman at 7:01 PM on April 16, 2017
Is it even likely that we could get a mortgage to build a house on vacant land?
Not to rain on your parade, but if you don't have a solid, on-paper plan for this, you need to do a lot more prep work. Do not assume the usual lenders will do this-they won't, or at least not in a way a regular borrower could make work.
We went around this tree a few times last year. Even with a smart bank loan officer on our side (we wanted to borrow a big chunk of money, our interests were on the parallel tracks for that moment), we couldn't arrange for a mortgage approval schedule that the bank would allow and that a contractor could build to. Banks only want to lend after a phase of construction is completed and passed inspection. Of course a contractor needs payment long before that, sometimes times a year before.
You need a way to float a loan for working capital during construction. Private loans are one way to do this. The most common way to custom build in Canada is to get the loan from the contactor in fact. In effect, they build for you, on their dime, then turn over the house to you when it gets an occupancy permit, and the bank is willing to issue a mortgage for it.
That's one scenario, there are others, I'm sure. But you need to have that plan worked out before before you set sail here.
Also keep in mind that you need to live somewhere during construction. You should plan for around a year of interim housing at least.
posted by bonehead at 6:27 AM on April 17, 2017
Not to rain on your parade, but if you don't have a solid, on-paper plan for this, you need to do a lot more prep work. Do not assume the usual lenders will do this-they won't, or at least not in a way a regular borrower could make work.
We went around this tree a few times last year. Even with a smart bank loan officer on our side (we wanted to borrow a big chunk of money, our interests were on the parallel tracks for that moment), we couldn't arrange for a mortgage approval schedule that the bank would allow and that a contractor could build to. Banks only want to lend after a phase of construction is completed and passed inspection. Of course a contractor needs payment long before that, sometimes times a year before.
You need a way to float a loan for working capital during construction. Private loans are one way to do this. The most common way to custom build in Canada is to get the loan from the contactor in fact. In effect, they build for you, on their dime, then turn over the house to you when it gets an occupancy permit, and the bank is willing to issue a mortgage for it.
That's one scenario, there are others, I'm sure. But you need to have that plan worked out before before you set sail here.
Also keep in mind that you need to live somewhere during construction. You should plan for around a year of interim housing at least.
posted by bonehead at 6:27 AM on April 17, 2017
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posted by Amity at 10:17 AM on April 16, 2017 [1 favorite]