January 26th, 2025 | Buying
What’s the Best Type of Mortgage When Upsizing a Home?
Many people enter Ottawa’s real estate market with the purchase of a condo or a small starter home. This makes sense since getting onto the property ladder as early as possible gives you the chance to start building equity.
As your purchasing power increases, you may want to upsize into a larger home or move to a more upscale neighbourhood. Think of how much your starter property has grown in value over the period of time that you have owned it. Selling it now allows you to cash in on all of that equity and makes your dreams of a more spacious home possible.
Nevertheless, most home buyers will still need some sort of financing to cover the difference in cost between their existing home and their next house. Where will these funds come from? In this post, we’ll explore the different types of mortgages you might pursue.
Curious about buying Ottawa real estate? Download our comprehensive buyer’s guide for free right here.
Contact Your Existing Lender
Before we go any further, let’s just note that in general, Realtors® are not mortgage experts, and this post is for information purposes only, so you know what options you might consider. We recommend that you discuss your unique mortgage needs with a mortgage broker or financial adviser before making any final decisions.
If you have an existing lender, that’s a good place to start the discussion for financing your next home purchase. There was a time when switching lenders once meant you’d be subject to another stress test before you could obtain a new mortgage. This is no longer the case under the newest financing guidelines. The OSFI (Office of the Superintendent of Financial Institutions) has removed the stress test requirement for mortgage renewals, regardless of lender, which gives you more flexibility if you want to shop different lenders.
Even if you don’t switch, your existing lender may feel more inclined to offer you the best renewal terms from the get-go, knowing you have options to move your business to a competitor. The new rules work in your favour, allowing you to stick with your existing lender or leverage your bargaining power regarding the terms and rate of your loan.
Are you ready to begin your home-buying journey? The posts below can give you a healthy head start:
- Are Older Homes a Good Investment in Ottawa?
- Should You Buy a Semi-Detached Home in Ottawa?
- 6 Advantages of Buying a Home with an Ottawa Real Estate Agent.
Visit a Mortgage Broker for More Options
Whatever you decide, it never hurts to visit a reputable mortgage broker for the latest advice and to see what financing options are available to you. On your own, it would take you days or even weeks to connect with multiple lenders to see which one would be the best fit when upsizing your home.
A mortgage broker can shop multiple lenders all at once – without resulting in multiple inquiries on your credit history. They can also advise you on what type of loan you should choose based on current rates and your personal situation. For example:
- Variable mortgages can offer the lowest rates. If rates are currently high, choosing variable gives you a chance to benefit when they begin to fall rather than being locked in. However, the risk is that your payments could increase in the event that rates go up even more.
- Fixed-rate mortgages lock in the current rate so you know how much your payment will be each month. This is often ideal if you don’t want to take the chance that rates will increase. Home buyers may also opt for a fixed mortgage when interest rates are very low. That can be a sign to lock them in for as long as possible. On the flip side, nothing is guaranteed. If rates drop, your payments remain the same for the duration of your term.
- 30-year mortgages are now available for first-time buyers and for those purchasing newly-built homes. This option can make upsizing more affordable as it may result in lower monthly payments. Just be aware that you will end up paying more interest the longer it takes to pay off your mortgage.
Are you and your family new to Ottawa? The related reading below will help you get to know your new city:
Consider the Amount of Your Down Payment
The down payment represents how much you will pay for your house using your own funds while the mortgage takes care of the remainder. The higher the down payment, the less you will pay for the home overall.
First, you’ll save on interest by using more of your own money and potentially paying off your mortgage faster. If you can come up with a down payment of 20% or more, you won’t need mortgage insurance, another significant expense off of your shoulders. That said, you can buy a home for as little as 5% down, depending on the price.
New guidelines for down payments have also made it easier to qualify for a mortgage, especially when upsizing your home. The requirements as of December 15, 2024 are as follows:
- 5% down on the first $500,000 or $25,000
- 10% on the amount from $500,000 to $1.5 million (previously $1 million), which works out to up to $100,000
- 20% on any amount over $2 million
Paying the highest possible amount upfront is a noble intention. However, timing is often of the essence when making real estate decisions. Upsizing your home sooner rather than later may be preferable, even if you can only make the minimum down payment.
Many new buyers cannot save money fast enough to keep up with rising housing prices. If you wait, the barrier to entry becomes greater as real estate values grow. If you buy now, you’ll protect and grow your existing equity, and your journey up the property ladder can continue.
Do you want to know more about buying or selling a home in Ottawa? Our Ottawa real estate agents are happy to walk you through the process. Reach out to mail@chellteam.com or call 613.829.7484 with any questions or to get started.
