Here is a situation -

Person Gross income - $83000 ( before taxes )

Already House ( Owned ) - Bought price $3,30,000 with mortgage 3,00,000
Now - Price of home around 3,20,000 with mortgage balance 2,80,000

Planning to buy new house - Price around 4,30,000
Planning to take 2nd Mortgage - around 3,90,000 - 4,00,000

Problem is - This is not right time to sell existing home

But this looks better time to buy New Home ( underconstruction )
House will be ready possibly in another 8-10 months

Person paying roughly $1400 monthly towards Mortgage
Rent expected on existing house - Possibly around $1300-1400 per month

SOMEONE suggested him -
-Do not sell existing home at present situation. Things will be much better say after few months ( as expected by Real Estate market )
-Contact bank or FI for new mortgage as mention above
-Tell bank or FI about putting existing home on rental
-Rent expected is enough to cover mortgage amount on existing home

Do you think, above mention option will work ?
If not, what difficulties he might face ?
Also what are the other options to him ?

Please suggest

My intial reaction is wow, this is a lot of mortgage to owe.
The renting out of existing home will not be profitable but may break even.
The monthly mortgage payment is approx. equal to expected rent.
However, still need to account for property taxes, utilities, maintenance, taxes on rental income, etc.
On the other hand, the mortgage interest will become tax deductible.

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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"

Is this Person eligible for 2nd Mortgage ? - Yes he is

Now, about having second house its upto the person,,, its always good to have RE investment if you are ready to wait for couple of years...

but there is always risk ,, if u get proper rental then its easy but something goes wrong then one has to put money from pocket...

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'Some goals are so worthy, it's glorious even to fail.' (Param Vir Chakra awardee Lt. Manoj Pandey)

Thanks Pratickm & Blue-peafowl

Few updates which I missed earlier

The main reason to go for 2nd Mortgage is take pre-approval for mortgage & book new home at reasonal good price at current situation.

But he is thinking of selling existing home by the time of possission date of new home
Hoping that his existing home will get better price 'that time' than 'today'

So chances are when he get a possission of new home- he will be carrying only one mortgage

Who said he is getting good price ?

Market is HOT now in Toronto (as per many RE agent : Market main AAG lagi hai) . better wait for one more year , there is something fishy on Toronto RE market.

Best thing is to wait and watch for atleast mid of 2011

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'Some goals are so worthy, it's glorious even to fail.' (Param Vir Chakra awardee Lt. Manoj Pandey)

I don't think prices will cool down until there is an appreciable rise in interest rates.
I don't think a rise of 25 bps or even 50 bps will make much difference.
That may not happen even in 2011.

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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"

What is the currunt prime rate?
I am getting Prime - .04

anyone has better rates?

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'Some goals are so worthy, it's glorious even to fail.' (Param Vir Chakra awardee Lt. Manoj Pandey)