When discussing Canadian real estate, the spotlight often shines on first-time homebuyers and their uphill battle to purchase a home. These buyers face formidable challenges, from saving for a down payment to qualifying for a mortgage. Yet, another group also faces significant hurdles: move-up buyers, who may be just as constrained by rising borrowing costs and expensive housing markets.

So, who exactly is a move-up buyer? A move-up buyer already owns a home and plans to sell it to purchase a larger or more desirable property. Reasons for this transition vary—whether for additional space to accommodate a growing family, moving into a better neighborhood, or capitalizing on favorable market conditions. However, in today’s high-cost, high-interest-rate environment, financing this move can be challenging, requiring careful planning and consideration of the available options.

Key Financing Options for Move-Up Buyers

Using Home Equity

If you purchased your home before the pandemic or during the initial stages of COVID when interest rates were historically low, you may have accumulated a substantial amount of equity. This equity can be a significant financial asset, potentially funding part of your next home purchase. However, consider using only a portion of your home equity, keeping some as a buffer rather than depleting it all. Selling a home is a major financial decision, and retaining a portion of your equity may help with future financial stability.

Line of Credit or Bridge Loan

Owning property can make accessing credit easier, often with favorable terms. Move-up buyers might explore a line of credit to partially fund their next purchase or secure a bridge loan if additional time is needed between selling one property and buying another. Each option has pros and cons, so consulting a mortgage broker and reviewing potential costs, including interest rates and fees, is essential. A line of credit may be a practical solution for a smaller purchase, while a bridge loan offers flexibility in timing your sale and new purchase.

Second Mortgages

While second mortgages are typically used for debt consolidation, some homeowners use them to fund their next purchase or assist family members financially. Although second mortgages often come with high-interest rates, they may be an option through traditional lenders with more flexible terms. Additionally, financial institutions might suggest a home equity line of credit (HELOC), allowing borrowers to access up to 65% of their home’s value. Assess your financial situation and comfort with this approach before proceeding.

Cash-Out Refinance

With cash-out refinancing, homeowners obtain a new mortgage, often with a different lender, and use it to pay off the original mortgage, locking in a new interest rate and term. However, there are costs, such as fees and penalties, and requirements to meet. Carefully consider whether long-term savings justify the upfront expense and if you meet eligibility criteria, such as a good credit score, sufficient home equity, and a manageable debt-to-income ratio.

Final Tips for Move-Up Buyers

Before making a move, review your finances in detail, including income, expenses, and future goals. Decide whether to buy or sell first, and do not feel pressured to rush the process. The Canadian housing market has been turbulent in recent years, and a well-thought-out plan can help you make confident, financially sound decisions. By working with trusted professionals and evaluating your options, you can successfully navigate the move-up process.