The wife and I are moving into our new house today! We had personal reasons to move, like wanting to be in a nicer house and neighborhood with a baby on the way this fall. There were also a few financial reasons that made us decide that now was a good time to make the move.
First off, housing prices have come down considerably here in Edmonton. While that also means that we had to sell our townhouse for $70,000 less than the highs of the last couple years, we were able to buy a house for $100,000 less than it’s comparable peak price. I realize prices could continue to drop, but there were other incentives to make this move.
Selling the townhouse, then subtracting the current mortgage (and penalty), real estate fees, lawyer fees, left us with enough money to have a 20% down payment and eliminate all our current debt (student loans, credit line from wedding). Having the 20% down saved us from the extra expense of CMHC insurance. Paying off our debts frees up enough money to pay for the larger mortgage payment. We are however borrowing money to fund our renovations so that we can get them done this year to meet the Home Renovation Tax Credit deadline.
With the new mortgage, we went with the Scotia Total Equity Plan (STEP) from Scotiabank. While our penalty for breaking our current mortgage was over $4,000, we’ll come out ahead with this mortgage, at 3.79% for the next 5 years. The STEP plan will also allow me to start a Smith Manoeuvre. This is a strategy where, as you pay down your principle, you can borrow it back through a home equity line of credit (HELOC) to invest. Not only does this allow you to invest early, this new loan is tax deductible. The STEP just recently added the ability to have your credit line automatically increase back to 80% of your equity. So if you pay $500 off your mortgage principle, $500 is now available for investing from your HELOC. I’ll be discussing the Smith Manoeuvre more as I get it up a running in a couple months.
There were also other little savings, like no longer paying condo fees and being closer to work. In fact my gas bill will be cut in half after this move! While some people may be waiting for prices to decrease some more, for the reasons above now was the right time for us.
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Sounds like you’ve got it all planned out. You didn’t just look at the negative side of purchasing a house, like the $4,000 you paid to break the contract, but how much you saved with the new interest rate. Congratulations on your house. You played it smart.