still have mortgage on old house to be torn down- want to build new house
You're effectively looking for a mortgage for a new self-build house.  At the beginning, you should be able to get a mortgage based on the value of the land only.  They may be willing to lend more as the build progresses. Try to find a company that specializes in this sort of mortgage. I could be wrong, but I doubt you're going to be able to roll the current mortgage into a new one. The problem is that the bank is going to require that the new loan is fully collateralized by the new house.  So the only way that you can ensure that is if you can construct the house cheaply enough that the difference between the construction cost and the end market value is enough to cover the current loan AND keep the loan-to-value (LTV) low enough that the bank is secured. So say you currently owe $40k on your mortgage, and you want to build a house that will be worth $200k. In order to avoid PMI, you're going to have to have an LTV of 80% or less, which means that you can spend no more than $160k to build the house.  If you want to roll the existing loan in, now you have to build for less than $120k, and there's no way that you can build a $200k house for $120k unless you live in an area with very high land value and hire the builders directly (and even then it may not be possible). Otherwise you're going to have to make up the difference in cash. When you tear down a house, you are essentially throwing away the value of the house - when you have a mortgage on the house, you throw away that value plus you still owe the money, which is a difficult hole to climb out of. A better solution might be to try and sell the house as-is, perhaps to someone else who can tear down the house and rebuild with cash. If that is not a viable option (or you don't want to move) then you might consider a home equity loan to renovate parts of the house, provided that they increase the market value enough to justify the cost (e.g. modernize the kitchen, add on a room, remodel bathrooms, etc. So it all depends on what the house is worth today as-is, how much it will cost you to rebuild, and what the value of the new house will be.
Advantages of buying: With every mortgage payment you build equity, while with rent, once you sign the check the money is gone. Eventually you will own the house and can live there for free. You can redecorate or remodel to your own liking, rather than being stuck with what the landlord decides is attractive, cost-effective, etc. Here in the U.S. there are tax breaks for homeowners. I'm not sure if that's true in U.K. Advantages of renting: If you decide to move, you may be stuck paying out a lease, but the financial penalty is small. With a house, you may find it difficult to sell. You may be stuck accepting a big loss or having to pay a mortgage on the empty house while you are also paying for your new place. When there are maintenance issues, you call the landlord and it's up to him to fix it. You don't have to come up with the money to pay for repairs. You usually have less maintenance work to do: with a house you have to mow the lawn, clear snow from the driveway, etc. With a rental, usually the landlord does that for you. (Not always, depends on type of rental, but.) You can often buy a house for less than it would cost to rent an equivalent property, but this can be misleading. When you buy, you have to pay property taxes and pay for maintenance; when you rent, these things are included in the rent. How expensive a house you can afford to buy is not a question that can be answered objectively. Banks have formulas that limit how much they will loan you, but in my experience that's always been a rather high upper bound, much more than I would actually be comfortable borrowing. The biggest issue really is, How important is it to you to have a nice house? If your life-long dream is to have a big, luxurious, expensive house, then maybe it's worth it to you to pour every spare penny you have into the mortgage. Other people might prefer to spend less on their house so that they have spare cash for a nice car, concert tickets, video games, cocaine, whatever. Bear in mind that if you get a mortgage that you can just barely afford, what do you do if something goes wrong and you can't afford it any more? What if you lose your job and have to take a lower-paying job? What if some disaster strikes and you have some other huge expense? Etc. On the flip side, the burden of a mortgage usually goes down over time. Most people find that their incomes go up over time, between inflation and growing experience. But the amount of a mortgage is fixed, or if it varies it varies with interest rates, probably bouncing up and down rather than going steadily up like inflation. So it's likely -- not at all certain, but likely -- that if you can just barely afford the payment now, that in 5 or 10 years it won't be as big a burden. The new mortgage qualification rules were introduced to cool a hot Canadian housing real estate market. The rules are a pre-emptive measure intended to avoid a bubble (and later crash) in real estate. The government wants to make sure anybody buying a house can handle higher interest rates. Those rates, currently at record lows, are expected to go up later this year and into the future. The tighter mortgage rules include: Borrowers will need to qualify against a minimum standard 5-year fixed rate mortgage, even if they'll contract their mortgage at a lower or variable rate.  Previously, the 3-year fixed rate mortgage was used as the minimum qualification standard. The amount a homeowner can borrow in a refinanced mortgage drops to 90% of the home value, down from 95% of the home value.  A home is not meant to be an ATM machine. Anybody wanting to borrow to buy an investment property – i.e. a property that won't be their principal residence – will need a 20% downpayment instead of a 5% downpayment. The new rules go into effect April 19th, 2010.  However, according to the backgrounder (see below): Exceptions would be allowed after   April 19 where they are needed to   satisfy a binding purchase and sale,   financing, or refinancing agreement   entered into before April 19, 2010. Definitive information about the new rules can be found at the Department of Finance of Canada.  Specifically, refer to: Some additional news media sources: "Is all interest on a first time home deductible on taxes? What does   that even mean? If I pay $14,000 in taxes will My taxes be $14,000   less. Will my taxable income by that much less? If you use the standard deduction in the US (assuming United States), you will have 0 benefit from a mortgage.   If you itemize deductions, then your interest paid (not principal) and your property tax paid is deductible and reduces your income for tax purposes.  If your marginal tax rate is 25% and you pay $10000 in interest and property tax, then when you file your taxes, you'll owe (or get a refund) of $2500 (marginal tax rate * (amount of interest + property tax)). I have heard the term ""The equity on your home is like a bank"". What   does that mean? I suppose I could borrow using the equity in my home   as collateral? If you pay an extra $500 to your mortgage, then your equity in your house goes up by $500 as well.   When you pay down the principal by $500 on a car loan (depreciating asset) you end up with less than $500 in value in the car because the car's value is going down.   When you do the same in an appreciating asset, you still have that money available to you though you either need to sell or get a loan to use that money. Are there any other general benefits that would drive me from paying   $800 in rent, to owning a house? There are several other benefits. These are a few of the positives, but know that there are many negatives to home ownership and the cost of real estate transactions usually dictate that buying doesn't make sense until you want to stay put for 5-7 years.   A shorter duration than that usually are better served by renting.  The amount of maintenance on a house you own is almost always under estimated by new home owners." "Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually ""loan origination fees"" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say ""zounds! I lost $20,000 by buying"". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period." You would have to find someone in the other state who wanted to swap.  This is conceivable but difficult if you want the houses to be the same value.  How do you find the one person who lives in the right place now and wants to move to the right area?   The normal way this situation is handled is to simply put your house on the market.  At the same time, you find a new house in the new location.  You arrange for a new mortgage for the new house and make purchase contingent on selling the old house.  Your buyer pays off your mortgage and gives you a bit left over that you use as a downpayment on the new house.   Note that you take a loss on closing costs when you do this.  This is why if you are in the position where you move frequently, you may be better off renting.   Sometimes an employer will help with this, paying for a long term hotel or short term rental.  This can give you more room to sell and buy the houses.   If you have to move right now, immediately, not in a few months when your housing situation is fixed, consider double renting.  You rent out your mortgaged house to someone and pay rent on a new place.  You may put some of your stuff in storage until you get into your permanent place.   The downside is that it can be harder to sell a house with a tenant until you are close to the end of the lease.  And of course, you are probably not in the best position to get or pay good rent.  Your situation restricts your options.  You might get stuck in this situation for a year so as to get the time that you need to line up a buyer.   Of course, you may get lucky and find someone who wants your old house as an investment property.  Such a person won't be bothered by a tenant.  But they usually want a good price.  After all, they want to make money off it.   There are those operations that advertise that they buy ugly houses.  They want a good deal.  You'll probably take a bath.  But they can buy quickly, so you can move on quickly.  No waiting until they find a buyer.   And I'm not saying that you can't do a swap like you want.  I'm just saying that you may find it difficult to find a swapping partner.  Perhaps an investment person would be up for it.  They take your house in trade for their house, letting you stay in their house until they can fix up your old house and either rent it or sell it.  The problem is that it may be hard to find such an investor who can handle a house where you are and has a house where you need to be.   I don't have a good suggestion for finding a swapping partner other than calling a lot of realtors and asking for suggestions.  Maybe a bit of online checking for properties where the owner's business is managing the sale. @OP:  It's all about risk.  With a cash buyer the decision is left up to one person.  With a financed buyer it adds another approval process (the lender).  It's another opportunity for the deal to fall through.  If the bank is the lender then there's even more risk.  They've already taken back the property once and incurred cost and they're setting themselves up to do it all over again.  The discount price can depend on a lot of factors.  Maybe it's a bad area and they need to get rid of it.  Maybe the appraisals for the area are low because of foreclosures and they know it will be hard for a Buyer to get a loan.  Lots of reasons as to what price they'd take. @Shawn:  Every deal has contingencies unless it's a foreclosure bought at auction.  Even if you are getting a steal from the bank in terms of price you're always going to have an inspection period.  If a Buyer doesn't need an inspection then he will just go to an auction and buy a property for an even cheaper price. "I would strongly try to influence circumstances so that buying is feasible. That means: Buy something where it is likely that you can resell it at the same price or even higher - or, at the least for significantly more than ""total cost of ownership - rent payed elsewhere"". For example, if it is in an area where you have good reasons to assume that prices will go up in the future. Or if the object needs refurbishing and you are sure that you can do it yourself. You will, no doubt, sell it later. You will near certainly not live in such a small house for all time. So the question of ""whether"" you will sell it is moot. So, when you have a potential house to buy, you will have to calculate everything very carefully, with an estimate of how long you will stay. You need to make your calculation as optimistic/pessimistic as you like (this is more a question of your character). Whatever calculation comes out better, wins. It goes without saying that if you miscalculate (for example, overestimating your ability or time to refurbish; forgetting to calculate non-obvious costs of refurbishing; being surprised by hidden damage to the object; misjudging the price development in the area) you run a considerable risk. So, the question of whether you are able to calculate the risks correctly will need to influence the calculation itself (add 20% or whatever risk buffer if you are not sure, etc.). But the potential is for you to have a very good start in the whole financial game of your life. Your house will likely be for a considerable time the biggest single part of costs in your life, and getting that under control from the get-go is a huge benefit." The bank loaned you money. They have lien on the property. They have filed paperwork with the local government regarding that lien. If you want to change that paperwork you need them to cooperate. They need to make sure that their interest in the property isn't jeopardized by your actions. Their investors demand that their money be protected. They charge $100 for that service. The quit claim deed tells the world that you are giving up ownership in the property. Are you sure you want to leave the interpretation of your actions and intent to a corporation and the legal system. With only seven years left on the mortgage you most likely have significant equity in the home, even if the value of the property hasn't gone up. Don't you wish to protect that equity by spending $100?