Growing Your Family and Your Mortgage | Quebec Guide

RefinancePro.club

The arrival of a child or a growing family often leads Quebec homeowners to consider purchasing a larger home. This transition requires careful mortgage planning, as it typically involves selling the current property and buying a more spacious one, or renovating to add space. From a financing standpoint, the borrower must requalify for a higher mortgage amount while respecting the debt service ratios prescribed by OSFI Guideline B-20. The gross debt service (GDS) ratio must not exceed 39% and the total debt service (TDS) ratio must not exceed 44%. Timing is critical: ideally, requalification should occur before parental leave, when both household incomes are still at their maximum. Quebec Parental Insurance Plan (QPIP) benefits represent approximately 70% of insurable earnings (basic plan) or 75% for the special plan, which can significantly reduce borrowing capacity. For bridge financing, most Canadian financial institutions offer temporary financing covering the period between purchasing the new property and selling the old one, usually for 30 to 120 days. Mortgage portability also allows you to transfer the conditions of your current loan to the new property, thereby avoiding prepayment penalties.

Your Family Is Growing: Rethinking Your Mortgage

The arrival of a child is a joyful time, but also a moment for significant financial planning. If your current home no longer meets your needs, upgrading to a larger property requires a well-thought-out mortgage strategy. In Quebec, where the real estate market varies significantly across regions, planning becomes even more important. The goal is to secure adequate financing while preserving your financial stability during this transition period.

Requalifying for a Higher Amount

To purchase a more expensive property, it is necessary to requalify with your current lender or a new one. Under OSFI Guideline B-20, your gross debt service (GDS) ratio must not exceed 39% and your total debt service (TDS) ratio cannot surpass 44%. The qualifying rate used for the calculation is the higher of your contract rate plus 2% or the OSFI floor rate (currently 5.25%). If your down payment is less than 20% of the purchase price, mortgage loan insurance from CMHC, Sagen, or Canada Guaranty will be required.

Transaction Timing

Timing is a determining factor in the success of this transition. Ideally, obtain your mortgage pre-approval 90 to 120 days before the planned start of parental leave. This gives you time to search for a property, make an offer, and complete the transaction before your income decreases. In Quebec, the average time between acceptance of a purchase offer and possession is 60 to 90 days, depending on notary availability and lender requirements.

Financing Strategies

Several strategies are available for financing the move to a larger home. Bridge financing covers the period between purchasing the new property and selling the old one, typically for 30 to 120 days. Mortgage portability allows you to transfer your current loan conditions to the new property. A blend-and-extend combines your old rate with the current rate if the borrowed amount increases. Finally, a sale conditional on purchase lets you synchronize both transactions, although this approach may be less competitive in a seller's market.

Renovating Rather Than Moving

Expanding your current home can be a more economical alternative to moving. Refinancing allows you to access your property equity to fund renovations, up to 80% of market value. A home equity line of credit (HELOC) offers additional flexibility by allowing advances as work progresses. Quebec programs like RenoClimat offer grants for energy-efficient improvements, and the fédéral Multigenerational Home Renovation Tax Credit may apply if you add a secondary unit for a parent or grandparent.

Frequently Asked Questions

Should I sell before buying when my family is growing?

Not necessarily. Bridge financing allows you to purchase your new home before selling the current one. Most Canadian banks offer this temporary financing for 30 to 120 days. However, you will need to qualify for both mortgages simultaneously, or have a firm offer on your current property.

How does parental leave affect my borrowing capacity?

QPIP benefits represent approximately 70% of your insurable earnings (basic plan). Lenders calculate your borrowing capacity using actual income at the time of application. It is therefore preferable to apply for your mortgage before parental leave begins, while both incomes are still at their full level.

What is mortgage portability?

Portability allows you to transfer your current mortgage (rate, term, conditions) to a new property. This avoids paying a prepayment penalty. If the new amount exceeds the old one, a supplemental loan (blend-and-extend) can be added at the current rate, combined with the old rate for a weighted average rate.

Can I renovate rather than move?

Yes, refinancing for renovations is a valid option. You can refinance up to 80% of your property value to fund an expansion. A home equity line of credit (HELOC) is another option offering more flexibility. Government programs such as RenoClimat can also help finance energy-efficient improvements.

How do I calculate the budget for a larger home?

Factor in the purchase price plus closing costs (notary, transfer duties, moving), higher property taxes, increased maintenance costs, and the impact of temporary income reduction during parental leave. Your mortgage broker can help establish a realistic budget by simulating different scenarios.