Worked Examples and Checklists
Buying before selling: bridge financing and the cost of owning two homes
What it costs to buy a new home before selling your current one in Canada, how bridge financing interest is calculated, and how to choose between buying first, selling first or a conditional offer.
If you buy your next home before your current one has closed, you need money for the new down payment before the sale proceeds arrive, and you may pay to own two homes at once. Most homeowners cover the gap with a bridge loan, a short-term loan from the new mortgage lender secured by your firm sale, priced as interest for the number of days plus an administration fee. A 30-day bridge on $200,000 at an illustrative 7% costs about $1,150 in interest plus the fee; the bigger risk is buying before you have a firm sale, when there is nothing to bridge.
This guide belongs to Worked Examples and Checklists. Mortgage rate and renewal questions are outside this site's scope; ask your lender. All figures are illustrative.
The three ways to sequence a move
| Strategy | How it works | Main cost | Main risk |
|---|---|---|---|
| Sell first | You accept a firm offer on your home, then buy | Possibly rent or storage if you cannot find a home in time | Pressure to buy quickly, or a move into temporary housing |
| Buy first | You firm up a purchase, then list | Bridge financing and two sets of carrying costs | Your home sells for less or later than planned |
| Conditional purchase | You buy with a condition that your home sells by a date | Less attractive offer; sellers may refuse or keep marketing with an escape clause | The seller can accept a better offer and give you a short time to waive the condition |
Same-day closings (selling and buying on the same date) are common but tight: your lawyer must receive the sale funds before your purchase can close. A gap of a few days with a bridge loan is often less stressful.
How bridge loan cost is calculated
Interest = bridge amount x annual rate x number of days / 365, plus a lender administration fee and sometimes a legal fee.
Example. Your purchase closes on 1 March, your sale on 31 March. You need $200,000 of your sale equity for the down payment. Bridge rate (illustrative): 7%.
- Interest: $200,000 x 7% x 30 / 365 = $1,150.68
- Administration fee (illustrative): $300
- Total bridge cost: $1,450.68
Lenders generally only offer bridge financing when the sale is firm (all conditions waived) and the purchase is with them. The amount is limited to your expected equity after commission and the mortgage payout, so use the net proceeds method to estimate it.
Carrying two homes
For the overlap period, add:
| Cost for one extra month (illustrative) | Amount |
|---|---|
| Interest on the old mortgage | $1,700 |
| Property tax (old home, through the adjustment) | $450 |
| Utilities and heating | $300 |
| Home insurance on an empty house (check vacancy clauses) | $120 |
| Condo fees, if any | $0 to $600 |
| Total | about $2,570 to $3,170 |
Plus the bridge loan, that is roughly $4,000 to $4,600 for a 30-day overlap in this example.
When buying first goes wrong
If you buy first with no firm sale and your home sells two months later at $30,000 less than planned, the cost is:
- Price shortfall: $30,000
- Commission saved on the lower price at 4% plus 13% HST: -$1,356
- Two extra months of carrying costs: about $5,140 to $6,340
- No bridge loan available until the sale is firm, so you may need a line of credit or unsecured borrowing at a higher rate
The total exceeds $33,000, far more than the bridge loan itself. That is why many advisers suggest selling first in a slow or falling market and buying first only when you are confident about your price.
Ways to reduce the cost
- Negotiate the closing dates so the sale closes before or on the same day as the purchase.
- Ask for a longer closing on your sale, or a short rent-back from the buyer if you need to stay after selling.
- Price realistically before you buy: a firm sale makes a bridge loan possible.
- Use a sale condition in a balanced or buyer's market, accepting it weakens your offer.
- Check the mortgage: if you are breaking a mortgage on the old home, get the payout statement early and ask your lender whether porting is possible, since prepayment charges can be larger than the bridge cost.
- Plan land transfer tax and legal fees for the purchase from cash, not from the sale proceeds, unless the timing lines up. Use the land transfer tax calculator.
Checklist before signing a purchase while you still own a home
- Is your sale firm? If not, is there a condition on the sale of your property in the purchase offer?
- Has your lender confirmed bridge financing in writing, the amount and the fee?
- Do you have cash for the down payment top-up, land transfer tax and legal fees on purchase day?
- Does your home insurance cover the old house if it is empty for more than the vacancy period?
- Have you allowed for commission and HST on your sale in the equity estimate?
Frequently asked questions
Can I get a bridge loan without a firm sale?
Usually not from a mortgage lender. Some borrowers use a home equity line of credit on the old home, which must be arranged before you list.
Is bridge loan interest tax-deductible?
Not on a personal residence. Interest is deductible only when the borrowed money is used to earn income, which needs advice.
How long can a bridge loan last?
Lenders set limits, commonly a few months. Ask your lender for its maximum term.
What if my sale falls through after I bought?
You still must close the purchase. Talk to your lawyer immediately; you may have a claim against the buyer, but you need financing in the meantime.
Sources
- Financial Consumer Agency of Canada — mortgages, lines of credit and prepayment charges
- CMHC — home buying step by step
- Real Estate Council of Ontario — conditions in agreements of purchase and sale
- OACIQ — conditions in Quebec promises to purchase
