It's that time of year again. A time when homeowners clean up their yards, paint their decks, declutter their home and adorn their lawn with a for sale sign. That's right, it's real estate season. Generally, this season brings plenty of advice for first-time homebuyers. But what about those who are hoping to sell their existing home and purchase their second or third home?
There are unique challenges that come with selling your first home and buying another, says Stacy Cabral, personal account manager at Envision Financial, and a few financial opportunities that people may not realize.
"Many homeowners will have profit to re-invest after selling their first home," says Cabral. "While it's common to shift all of the profit into your second or third home, this could be an opportunity to start a new investment strategy or put money away for your children's education. Even shifting a small percent of the profits into investments can make a big difference in the long run."
Good debt from bad
Buying a new home is also a great opportunity to convert bad debt into good debt - and write off the tax as well.
"Interest paid on a traditional mortgage is not tax deductible in Canada," notes Cabral. "This is called 'bad debt.' But certain mortgage vehicles, like our Redfrog mortgage, provide the opportunity to convert money owing into 'good debt.' When you pay down your mortgage, you can re-invest the available capital into income-producing assets which makes the interest paid tax deductible. Simply put, over time you are converting your mortgage into an investment portfolio."
Remembering details like the CMHC fee can also save people a significant amount of money the second time around, says Cabral.
"CMHC fees can sometimes be a huge surprise to first-time homebuyers, so don't make the mistake of forgetting them on your second purchase. To avoid the fee, purchasers need at least a 20% down-payment, so factor in what that would be and stick within that price range."
There are many other fees that come with selling a home and buying a new one, including real estate fees, property transfer tax, appraisals and legal fees and inspections. There's also home insurance and mortgage protection insurance or life insurance to consider.
"Make sure you do some comparison shopping on the services wherever possible," advises Cabral. "There can be a big difference in cost from one service provider to another. But make sure you're also clear on what the supplier's services include for that cost - this can also vary widely and you want to make sure you make an informed decision."
Finally, selling a property will often result in mortgage penalties. But Cabral says that there are ways to avoid yet another costly bill.
"Port the mortgage instead of paying it off and applying for a new one," says Cabral. "By doing this you are simply re-applying for the difference between the two homes instead of needing approval for the full amount. If you do decide to break your contract, many financial institutions will refund the fee within a certain time frame if you agree to stay a customer. Remember to ask, though, because not all will tell you it's an option."
About Envision Financial
Envision Financial is a division of First West Credit Union, B.C.'s third-largest credit union with 37 branches and 29 insurance offices throughout the Lower Mainland, Fraser Valley, Kitimat and Okanagan, Similkameen and Thompson regions. Led by Launi Skinner, First West has approximately $6.6 billion in assets under administration, over 169,000 members and nearly 1,400 employees. For eight years running, Envision was named one of the 50 Best Employers in Canada. Envision is designated a Caring Company by Imagine Canada.
