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Mortgage - How to calculate how much more I can afford moving into larger place?

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[OP]
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Nov 23, 2010
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Toronto

Mortgage - How to calculate how much more I can afford moving into larger place?

So quite a few things have changed for me over the past few years.

I had purchased a townhouse about 5 or so years ago, so its value has gone up.

I got married, so now I have a larger house hold income

I also have had salary increases.

When I try to look online at mortgage affordability calculators, they all ask certain questions to determine how much I can borrow.

Now I know my salary, my spouses salary, plus our personal savings would all be a factor in determining how much I can borrow, but my X factor is my current townhouse.

Its not paid off obviously, so I am assuming that the outstanding balance would get rolled into my new mortgage. Its also gone up in value, so Im a bit confused what numbers to punch into a calculator.

For example, lets say (trying to keep things simple) I still have $400k left on the mortgage. I can sell it for lets say $900k - so I made a profit of $500k

Would it be safe to assume that I would then take my total current house hold income, and my "down payment" would then be the $500k profit + whatever savings we have?

Not sure if that makes sense, Im just trying to wrap my head around how to calculate how much more of a mortgage we can get.
8 replies
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Oct 9, 2010
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Windsor
You need to know theoretical selling price (minus 6%), and how much you still owe on the house. Subtract those two numbers, and that's how much "cash" you'll have when you sell your home (ignoring fees).

With that number, you can put that in as your "down payment" (even if you're not planning to use it all), and enter your other info as usual.

In your hypothetical situation, you apparently bought the house for $400k and didn't put a cent into it other than paying mortgage interest. You sell it for $900k, you will have ultimately sold for about $850 ... maybe $825k after random fees and other stuff. The bank wants it's loan back ($400k), since you don't have a house anymore, so that's $825 - $400 = $425k in your pocket.

When you buy a new house, if you qualify for a $100k loan, you obviously have $100k + $425k = $525k in purchasing power.

Random extra tidbit of information: home sales volumes in Toronto Y-o-Y are down pretty considerably.
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Deal Expert
Aug 2, 2004
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East Gwillimbury
As a general rule of thumb, assume you can comfortably borrow 5 times your household income with a minimum 20% deposit

It's not meant to be accurate, but a conservative estimate.
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Sep 1, 2005
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Don't forget that massive land transfer tax we have here! On $1.2 Mil home, transfer tax is $41k. Add to that your R/E commission, closing and legals and over $100k is eaten off the top !!!! These costs are one of the reason, people in starter homes choose to renovate rather than buying upgrade.

http://www.trebhome.com/buying/LTT_calc ... ulator.htm
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Sr. Member
Feb 28, 2015
554 posts
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Toronto, ON
Don't fool yourself, if you bought it for $400k and sold it for $900k, you didn't make a $500 k profit! You paid taxes, utilities, upkeep, and interest on the original investment. Not to mention the real estate fees when you sell, and the closing costs on the new property.
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Jul 23, 2004
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I would start the other way.
You're paying a mortage currently. Your basic expenses will stay the same.
Your property taxes, maintenance, utility bills will go up a bit with a bigger house.

Right now, after all is paid, including your savings, how much margin do you have? How much of that margin are you willing to put in payments on you mortgage payments for your new house?
Deal Addict
Feb 4, 2010
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skoalman123 wrote: Don't fool yourself, if you bought it for $400k and sold it for $900k, you didn't make a $500 k profit! You paid taxes, utilities, upkeep, and interest on the original investment. Not to mention the real estate fees when you sell, and the closing costs on the new property.
Also $400k isn't the initial purchase price in his example, but rather the remaining amount left on the mortgage - so I didn't understand how OP sees this as a $500k profit when he doesn't take into consideration how much he actually paid for the house (plus all the other costs).
[OP]
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Nov 23, 2010
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Toronto
Jazmina wrote: Also $400k isn't the initial purchase price in his example, but rather the remaining amount left on the mortgage - so I didn't understand how OP sees this as a $500k profit when he doesn't take into consideration how much he actually paid for the house (plus all the other costs).
Maybe "profit" wasnt the correct term, I couldnt think of the words for it.

As when first purchasing the house, I had to have a down payment, and some other calculations to see what was my affordability.

I was trying to understand if the difference between the balance owing, and the selling price could this be taken into consideration as a "downpayment" along with what ever other savings I may have.

I understand that there are a lot more nuances as others have mentioned, I was just trying to understand how best to categorize that difference into what bucket
Deal Expert
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Dec 12, 2009
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OP, if you have already owned a home, you have a good idea of the various expenses associated with ownership. When upgrading a property, all aspects of home ownership goes up. The home insurance will go up proportionately as will utilities like heating and AC, property tax.... So do an estimate of the new cost stream by escalating each expense. For the mortgage, escalate the monthly payments by the increased amount of the new mortgage. I assume that any cost differential in the upgrade will be covered by a loan increase. Compare all the increases to the excess income you have today. If there are no funding gaps, then you can afford it. If things look tight, then consider buying less home. This is a much better approach than doing calculators which use rule of thumb estimates that do not suit any particular family's spending habits.

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