Home Upgrade – Down Payment Math Simplified
Unless you plan on renting out your existing home (which for many is a real consideration), typically the down payment on the next home will come from the sale of the existing home. With all that equity built up, the amount of down payment available will play a major role in how the financing of your next home may be structured.
So, in order to get a good idea of how much will be available, the following steps will help break down these numbers:
What is a conservative sale price for your existing home?
What is the remaining mortgage balance on your current home?
Any penalty to break your existing mortgage: check out our port vs. penalty article here for more info.
Selling costs for the existing home: A typical selling commission is 4% (calculate based on sale price)
Land Transfer Tax on the new home: Use our handy calculator here that opens ina new window (calculate on estimated purchase priced)
Lawyer and other legal fees for buying and selling: This is usually around $5,000 on the higher side
RESULTS IN THE GROSS AMOUNT AVAILABLE FOR YOUR PURCHASE.
In summary, the equation looks like this:
Sale price – current mortgage – potential breakage penalty – real estate sales costs – land transfer tax on the new home – legal and other closing costs = amount you will have for down payment on the next.
$700,000 sale price – $250,000 current mortgage – $7,000 breakage penalty for a new lower rate mortgage – $28,000 sales costs – $15,500 land transfer tax on the new home ($950,000 purchase price) – $5,000 lawyer/ closing costs = $394,500
So in this example, I could confidently say that after all the expenses and processes involved, I would have up to $394,500 available to put towards the next house.