How to Calculate Home Equity for Your Next Purchase

If you’re a Canadian homeowner thinking about moving, whether to upsize, downsize, or relocate, you’re not starting from scratch. You’ve built equity, you know how the process works, and you likely have a better idea of what you want in your next home.

But even with experience, one key question still trips many homeowners up:

“How much mortgage can I actually afford after selling my current home?”

As a mortgage specialist, I help clients like you figure that out every day. Here’s a clear breakdown of how to estimate your mortgage budget when buying a new home after selling your current one.

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Step 1: Know Your Current Home Equity

The first step is understanding how much equity you’ve built in your current home. Your home equity is the value of your home minus the balance left on your mortgage.

For example:
If your home is worth $750,000 and your remaining mortgage is $450,000, your equity is approximately $300,000.

However, you won’t walk away with the full $300,000. You’ll need to account for:

• Realtor commissions (usually around 4–5%)
• Legal fees
• Mortgage discharge penalties (if applicable)
• Moving costs or pre-sale repairs

After these costs, your net equity might be closer to $270,000–$280,000. This is the amount you can likely use toward your new home purchase.

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Step 2: Decide How Much You Want to Put Down

Once you know your net equity, decide how much of it you want to use as your down payment. Some homeowners choose to keep a portion for emergency savings or renovations in the new home.

If you’re buying a home for $800,000 and plan to use $200,000 as a down payment, that’s a 25% down payment. This is important because:

• A down payment of 20% or more means you won’t need mortgage insurance.
• A larger down payment reduces your monthly mortgage payments.
• Keeping some equity in reserve can provide financial flexibility.

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Step 3: Understand Your Borrowing Power

Your mortgage amount will be based on a few key factors:

• Your income and employment stability
• Your credit score
• Your monthly debts (including car loans, credit cards, lines of credit)
• Your down payment
• The current interest rate
• The mortgage stress test

The stress test is mandatory in Canada and ensures you can afford your mortgage even if rates rise. Currently, lenders qualify you using the higher of the contract rate + 2% or 5.25%, whichever is greater.

A mortgage broker can run the numbers and show you exactly what you qualify for based on your updated financial situation and expected down payment.

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Step 4: Factor in Bridge Financing (If Needed)

One common concern for move-up buyers is timing. What if you find your dream home before your current home sells?

This is where bridge financing comes in. It’s a short-term loan that lets you use the equity from your current home before it closes. Not everyone needs it, but it’s important to factor it into your budget if your purchase date comes before your sale closes.

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Step 5: Don’t Forget About Closing Costs

When upgrading to a new home, it’s easy to forget about additional costs, including:

• Land transfer tax (varies by province and city)
• Legal fees and disbursements
• Appraisal fees (sometimes required by lenders)
• Home inspection costs
• Property tax adjustments or utility hook-ups

I usually recommend budgeting 1.5% to 4% of the new home’s purchase price for these closing costs.

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Final Thoughts

Moving from one home to another is more than just a transaction. It’s a financial strategy. When you understand your equity position, borrowing power, and real costs, you can move forward with confidence.

As mortgage specialists, our role is to guide you through that process helping you crunch the numbers, compare lender options, and plan a budget that fits your lifestyle and long-term goals.

Thinking about your next move? Contact us anytime for a personalized mortgage assessment based on your current home equity and future plans.

At Indi Mortgage, we offer a fresh, modern approach! One that’s simple, transparent, and built entirely around your needs and long term goals. We believe getting a mortgage shouldn’t feel overwhelming. It should feel empowering and exciting!