Home equity is the portion of your home you actually own, calculated as the current market value of the property minus everything you still owe against it. If your Toronto condo would sell for $800,000 today and your mortgage balance is $550,000, your home equity is $250,000.
How the calculation works
The math is subtraction, but the first number takes some care. What you paid for the home years ago is not its value today, and your MPAC assessment is not a market figure either. The most reliable starting points are a comparative market analysis prepared by a real estate agent or a professional appraisal ordered by a lender. From that value, subtract your mortgage balance along with any other debt secured by the property, such as a line of credit registered against the title.
Equity builds from two directions at once. Each mortgage payment moves a little more of the property from your lender's side of the ledger to yours. Appreciation does the rest, since any increase in what the home is worth belongs entirely to you. The reverse is also true. When prices soften, equity shrinks even though your mortgage balance has not changed, which is why equity in a Toronto property can swing meaningfully from one year to the next.
How much of it you can use
Federally regulated Canadian lenders will let you borrow against up to 80 percent of your home's appraised value, including your existing mortgage. A refinance can take you to that 80 percent ceiling in a lump sum, while a home equity line of credit caps its revolving portion at 65 percent of the home's value under federal rules. Using the condo example above, 80 percent of $800,000 is $640,000, so with a $550,000 mortgage the accessible amount is roughly $90,000 rather than the full $250,000.
The rest becomes available when you sell. At that point the sale price pays out your remaining mortgage, commission, and legal fees, and whatever is left is yours. For most Ontario homeowners that money, protected from tax by the principal residence exemption, becomes the down payment on the next home.
Related reading: Do You Pay Capital Gains Tax Selling Your Ontario Home?, Should You Sell Your Home Before You Buy in Toronto?, and What Are the Costs of Selling a Condo in Toronto?.
