Understanding Equity & Bridge Loans in Canadian Real Estate
What is Equity in a Property?
Equity is the value of your ownership in your home. It’s calculated by subtracting your remaining mortgage balance from the current market value of your property.
Example:
If your home is worth $600,000 and you still owe $350,000 on your mortgage:
Equity = $600,000 – $350,000 = $250,000
This equity becomes available when your home sells and closes. But what if you’re buying your next home before that happens? You will need a bridge loan, also commonly referred to as bridge financing
What is a Bridge Loan?
A bridge loan is a short-term loan that helps you access the equity from your current home before it closes. It allows you to make the down payment or cover closing costs on your new home, even if your existing sale hasn’t yet completed.
When is a bridge loan used?
- You’ve bought a new home before your existing home closes
- You need the equity from your current home for your down payment
- You have a firm sale agreement on your existing home (i.e. no remaining conditions)
Simple Bridge Loan Calculation Worksheet
Let’s say you’re upgrading to a new home and need access to your equity for the down payment.
| Description | Amount |
|---|---|
| Sale price of your current home | $500,000 |
| Remaining mortgage on current home | -$250,000 |
| Total equity available | $250,000 |
| Required down payment on new home | $150,000 |
| Deposit already paid with offer | -$25,000 |
| Bridge loan required (short-term borrowing) | $125,000 |
You would borrow $125,000 temporarily, secured against the equity in your current home. The loan is repaid as soon as your home sale closes and the equity is officially available.
Quick Facts About Bridge Loans (Alberta & Canada)
| Feature | Details |
|---|---|
| Term | Usually 1–14 days (can be longer if needed) |
| Interest Rate | Prime rate + (interest-only, calculated daily) |
| Fees | Setup fee of ~$250–$500 |
| Security | Registered against your current home |
| Repayment | Paid in full from sale proceeds on closing |
| Deposit Consideration | Bridge loan is based on net funds needed, so deposits or other down payment sources approved by your lender reduce the loan amount |
Bridge Loans Without a Firm Sale – Private Lender Options
In some cases, you may need a bridge loan before your current home has sold firm (i.e. before all conditions are removed). While most traditional lenders in Canada require a firm sale agreement to approve bridge financing, private lenders may offer more flexible solutions. These lenders assess your overall financial picture and the strength of your property’s marketability rather than relying strictly on a signed purchase contract. However, because these loans carry more risk for the lender, they typically come with higher interest rates, larger setup fees, and may require interest to be prepaid upfront. The loan is still secured against your current property, possibly the new property, and repayment is expected once your home sells. This can be a helpful option if you’re in a strong market or expect a quick sale, but it’s important to work with a mortgage broker and lawyer who can guide you through the process and ensure you understand the costs and risks involved.
Final Thoughts
A bridge loan can be a practical solution when timing doesn’t quite line up between your sale and purchase. It ensures you can move ahead with confidence, without having to delay your next move or scramble for interim financing. All lenders may have a different process in terms of how the loan is set up, within that process your mortgage broker and real estate lawyer will work together with your lender to arrange the bridge loan and ensure everything flows smoothly between both transactions.