Probably one of the most common things I hear when discussing the value of someone’s home in today’s market is “that’s great, but where do I go?” My response to this is always “where do you want to go?” If you have lived in your home for the last couple of years then you will have built up some pretty good equity since the market has really taken off. Use this as an opportunity to reinvest your equity and do whatever it is that you want; I will explore some scenarios here with you.
Are you thinking about upsizing? Now is your time. If you are in a townhouse or condo, you can use the equity (and the money you’re currently paying each month in strata fees) towards a bigger mortgage, without really having to increase your payments too much. Let’s throw some numbers around for an example (the following numbers are being used as an example and will vary depending on your unique situation): Say you bought your townhome 3 or 4 years ago for $350,000 and you had $25,000 down. Since purchasing it, you would have also paid down some of the principal on your mortgage (say you’ve paid off another $25,000 in principal). So, you now owe $300,000 on your townhome. Depending on where you live, your townhome could very well sell for $700,000 (maybe even more). So, you have $400,000 in equity. If you also consider the amount you pay towards strata fees that could earn you another $100,000 towards a mortgage. If you take the $400,000 you have in equity, add another $100,000 that you would be paying towards strata, and then take out another $300,000 mortgage (maybe even increase this a bit – has your employment situation changed? Are you earning more now than you were 3 years ago? Are you done making a car payment? – maybe you can afford a slightly bigger mortgage). Now you can move into a single-family home and still pay roughly what you were paying per month to live in a townhome.
Are you thinking about changing locations? Maybe you’ve been thinking about moving to a more expensive area that hasn’t been a reality before because you weren’t able to afford it. Now that you have so much equity in your home, this may be a reality for you now. Maybe you have to downsize a bit to get there or do some minor renovations to the house you buy but you can still re-invest your equity and the same logic I use above can apply. Let’s consider this (numbers will vary depending on your unique situation): Say you bought your home 2 years ago for $700,000. You put $50,000 down and you’ve paid off $35,000. You now owe $615,000. If your house is now worth $1,300,000, you have $685,000 in equity! This is money in your pocket that you can reinvest into a home in your dream neighbourhood while keeping your mortgage payments somewhat the same. Maybe you buy a house for $1,200,000 in your dream neighbourhood that’s a bit of a fixer upper. You take another $100,000 and do some renovations to really make it your dream home and design it to your liking in all aspects. You now have the home of your dreams in your perfect neighbourhood all for the same amount you were paying before*.
The point is, an increase in your equity provides you with an opportunity to reinvest that equity to make a change that maybe wasn’t possible for you before. Yes, the lower mainland is expensive, but if you are already in a home then you certainly will have some equity that you can use to make your next real estate dream a reality.
*Keeping in mind the various costs associated with moving such as Property Transfer Tax, legal fees, real estate fees, etc.
Fiona White – REALTOR® with Sutton Group – West Coast Realty