When searching for a new home, the first step is to figure out how much you can afford. Ratehub.ca takes the most important factors like your income and expenses and determines the maximum purchase price that you can qualify for with our mortgage affordability calculator.
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Frequently Asked Questions
How do I calculate my affordability?
Determining how much you can afford to pay when purchasing a home, as well as your monthly mortgage costs, is likely your biggest consideration when on the real estate hunt. But figuring out just how much you can afford isn’t as straightforward as working monthly payments into your budget. Your affordability will be based on several factors including the total income of all mortgage applicants, existing monthly expenses and debt obligations (such as car payments, daycare, credit card payments, etc.), as well as the monthly expenses associated with homeownership (for example utilities, property taxes, condo fees).
Two of the most important metrics taken into consideration by your mortgage lender at qualification will be your debt service ratios. The first is your gross debt service ratio (GDS), which takes into account your mortgage principal and interest, along with your taxes and heating expenses, divided by your annual income. As a rule of thumb for mortgage qualification, your GDS ratio should be in a range of between 32 - 39%. The second metric is your total debt service ratio (TDS), which includes broader expenses such as your housing costs, credit card interest, car payments and loan expenses, divided by your annual income. Your TDS ratio should be in a range of 40 - 44%.
These metrics, combined with other elements such as your credit score, will help your lender determine how much mortgage you can afford.
Also read: How your credit score affects your mortgage
What is the minimum down payment I can make?
In Canada, as per the Federal Department of Finance, home buyers must make a minimum down payment of 5% on the first $500,000 of their home’s purchase price, and then 10% on the remaining portion between $500,001 and $1 million. Home buyers must make a 20% down payment on properties priced at $1 million or more.
A home buyer who is making a less than 20% down payment on their home purchase – also referred to as a “high-ratio borrower" – is required by law to take out mortgage default insurance. This coverage is often also referred to as CMHC insurance, as the Crown Corporation has historically been the predominant provider of this coverage. The other two providers of mortgage insurance in Canada are Canada Guaranty and Sagen.
Mortgage default insurance costs home buyers between 2.8% to 4% of their total mortgage amount, and premiums are rolled up into the borrower’s monthly mortgage payments. They are paid right from the start of the mortgage.
The purpose of mortgage default insurance is to protect lenders in the event a borrower cannot continue to make their regular mortgage payments, effectively defaulting on their mortgage loan. High-ratio borrowers are considered to pose an extra level of risk in this regard, because they have less equity in their home due to their smaller down payment. As mortgage default insurance is backstopped by the Government of Canada, this further protects lenders while giving higher-risk borrowers better access to mortgages, and lower interest rates than they would otherwise qualify for due to their risk profile.
Also read: Insured vs. uninsured mortgages
How is CMHC insurance calculated?
The amount you’ll pay in CMHC insurance (also referred to as mortgage default insurance), is calculated as a percentage of your mortgage loan, and is based on the size of the down payment you’re making; generally speaking, the smaller your down payment, the higher your CMHC insurance premiums will be.
See the chart below for more details on how premiums differ based on down payment amounts:
Source: CMHC
How much mortgage can I afford?
Let’s use the Affordability Payment Calculator above to determine a buyers’ maximum affordability in this scenario.
Assuming the home buyer has an annual income of $100,000, makes a $50,000 down payment (10% of the total purchase price), they would qualify for a home priced at $504,117. As the down payment is less than 20%, this scenario includes $18,165 of CMHC insurance premiums added to the mortgage. Subtracting the initial $50,000 down payment amount, that equals a total mortgage amount of $472,282.
What is the maximum mortgage amortization in Canada?
In Canada, the maximum mortgage amortization for a high-ratio mortgage (less than 20% down paid) is 25 years. Low-ratio borrowers, however, can get an amortization up to 30 years from an A lender, or up to 35 years with a B or alternative lender.
When I use the calculator, why does the Land Transfer Tax (LTT) line item change if I toggle to the First-Time Home Buyer option?
If you select the First-Time Home Buyer option, the calculator applies the appropriate federal and provincial rebates available to first-time home buyers, resulting in a lower land transfer tax amount.
What is the Estoppel certificate fee?
The Estoppel certificate fee is commonly known as a "condo status certificate". It is issued by the condominium corporation as part of the due diligence process when purchasing a condominium, and essentially gives you an overview of the status of the condo unit and the corporation to allow you to make an informed decision.
How much mortgage can I get with a $70,000 salary?
The amount of income a home buyer has is only one part of the mortgage affordability equation; your lender will also base the amount you’ll qualify for on the amount you have saved up for your down payment. Let’s say a buyer theoretically earns $70,000 and wishes to purchase a home, with the following assumptions:
- There is not a co-applicant, or their partner does not have a salary that can be factored into the equation.
- They have a down payment amount of $21,000 (30% of their gross annual income, which is a popular benchmark used to determine how much income should contribute to housing costs).
Using our Mortgage Affordability Calculator, a home buyer the above criteria would qualify for a property with a maximum purchase price of $284,876.
Now, let’s assume there are two co-applicants earning a $70,000 salary, with a combined household income of $140,000 and $42,000 saved up for a down payment. In this scenario, these buyers would qualify for a maximum mortgage amount of $572,400.
How much can I borrow against my house in Canada?
In Canada, homeowners can access up to 65% of their home’s value as part of a Home Equity Line of Credit (HELOC). However, it’s important to note that your mortgage loan and HELOC balances combined do not exceed 80% of your home's appraised value. Borrowers can also access up to 80% of their home’s appraised value (minus any amount still owed on their mortgage) when taking out a second mortgage.
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Guide to mortgage affordability
Why calculate mortgage affordability?
When you're looking to buy a home, it's handy to know how much you can afford. Being able to calculate an estimate of how much you're able to borrow is an important part of setting your budget.
“How much house can I afford?” is a common question when starting the property hunt; you also need to determine if you have enough cash resources to purchase a home. The cash required is derived from the down payment put towards the purchase price, as well as the closing costs that must be incurred to complete the purchase. We can help you estimate these closing costs with the Cash Needed tab under the mortgage affordability calculator above.
Taken together, understanding how large a mortgage you can afford to borrow and the cash requirements involved will help you determine what kind of home you should be searching for.
April 2024 Canadian mortgage affordability update
Following brisk sales in the first few months of the year, affordability declined further for home buyers in March, based on the latest Affordability Report compiled by Ratehub.ca.
According to the findings, affordability conditions declined in 12 of the 13 markets studied, mainly due to rising home prices across Canadian markets, which effectively offset stabilizing mortgage rates.
The study calculates the minimum annual income required to buy an average home in some of Canada’s major cities based on March 2024 and February 2024 real estate data. The report illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home.
This month’s edition finds Toronto home buyers saw affordability decrease by the largest margin, as home prices there increased $19,700 to an average of $1,113,600. As a result, borrowers must have an income that’s $3,400 higher than last month to qualify for a mortgage on the average priced home in the city.
That was followed by Hamilton, and Vancouver. Halifax was the only city studied where the average home price actually decreased.
Read more: Rising home prices made it more challenging to buy a home in March
What is mortgage affordability?
Mortgage affordability refers to how much you’re able to borrow based on your current income, debt and living expenses. It’s essentially your purchasing power when buying a home. The higher your mortgage affordability, the more expensive a home you can afford to purchase.
The term ‘affordability’ is also used to describe overall housing affordability, which has more to do with the cost of living in a particular city. If the cost of housing relative to the average income in a city is high, it will be seen as a less affordable place to live. The two terms are related, but it’s important to understand the difference.
There are many factors that will affect the maximum mortgage you can afford to borrow, including the household income of the applicants purchasing the home, the personal monthly expenses of those applicants (car payments, credit expenses, etc.) and the expenses associated with owning a home (property taxes, condo fees and heating costs, etc.).
How much can I afford?
How much you can afford to spend on a home in Canada is primarily determined by how much you can borrow from a mortgage provider. That is, unless you have enough cash to purchase a property outright, which is unlikely. Use the mortgage affordability calculator above to figure out how much you can afford to borrow based on your current situation.
How to use the mortgage affordability calculator
To use our mortgage affordability calculator, simply enter your and your co-applicant’s income (if applicable), as well as your living costs and debt payments. The calculator can estimate your living expenses if you don’t know them.
With these numbers, you’ll be able to calculate how much you can afford to borrow. You can also change your amortization period and mortgage rate to see how that would affect your mortgage affordability and your monthly payments.
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How to estimate affordability
There is a rule of thumb about how much you can afford, based on the calculations your mortgage provider will make. Your lender will use two debt ratios when determining whether you can afford a mortgage. These ratios are called the Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio. They take into account your income, monthly housing costs and overall debt load.
The first affordability guideline, as set out by the Canada Mortgage and Housing Corporation (CMHC), is that your monthly housing costs – mortgage principal and interest, taxes and heating expenses (P.I.T.H.) - should not preferably not exceed 32% of your gross household monthly income, up to a maximum of 39%. For condominiums, P.I.T.H. also includes half of your monthly condominium fees.
The second requires that your total debt load (which includes housing costs), totals no more than between 40% - 44% of your gross household income. In addition to housing costs, your total monthly debt load would include credit card interest, car payments and other loan expenses. The sum of your total monthly debt load as a percentage of your gross household income is your TDS ratio.
Maximum limits
While the general preferred guidelines for GDS and TDS are 32% and 40% respectively, most borrowers with good credit and steady income are allowed to qualify at the upper end of the debt-ratio thresholds.
The maximum GDS limit used by most lenders to qualify borrowers is 39% and the maximum TDS limit is 44%. Our mortgage calculator uses these maximum limits to estimate affordability.
On July 1st, 2020, the CMHC implemented new GDS and TDS limits for mortgages that it insured, with the new GDS limit for CMHC-insured mortgages becoming 35% and the new TDS limit for CMHC-insured mortgages becoming 42%. However, on July 5, 2021, these updated requirements for insured mortgages were reversed, and the GDS and TDS limits reverted to 39% and 44%, respectively.
The CMHC changes had fairly minimal impact on borrowers, as Sagen and Canada Guaranty, the two other mortgage insurance providers in Canada, did not change their maximum limits. Consequently, mortgage lenders continued to use the old maximum GDS/TDS limits of 39/44 available through these other insurers. The main result of CMHC's temporary change in requirements was a major loss in market share, which is why the more stringent requirements were reversed in June 2021.
Down payment
Yourdown paymentis a benchmark used to determine your maximum affordability. Ignoring income and debt levels, you can determine how much you can afford to spend using a simple calculation.
If your down payment is $25,000 or less, you can find your maximum purchase price using this formula:
Down Payment
÷5%
= Maximum Affordability
If your down payment is $25,001 or more, you can find your maximum purchase price using this formula:
(Down Payment Amount - $25,000)
÷10%
+ $500,000
= Maximum Affordability
For example, let's say you have saved $50,000 for your down payment. The maximum home price you could afford would be:
($50,000 - $25,000)
÷10%
+ $500,000
= $750,000
Any mortgage with less than a 20% down payment is known as a high-ratio mortgage, and requires you to purchase mortgage default insurance, often referred to as CMHC insurance (though, as noted above, mortgage default insurance is also provided by Sagen and Canada Guaranty).
Cash requirement
In addition to your down payment and mortgage default insurance, you should set aside 1.5% - 4% of your home's selling price to cover closing costs, which are payable on closing day. Many home buyers forget to account for closing costs in their cash requirements.
Other mortgage qualification factors
In addition to your debt service ratios, down payment and cash for closing costs, mortgage lenders will also consider your credit history and your income when qualifying you for a mortgage. All of these factors are equally important. For example, even if you have good credit, a sizeable down payment and no debts, but an unstable income, you might have difficulty getting approved for a mortgage.
Keep in mind that the mortgage affordability calculator can only provide an estimate of how much you'll be approved for, and assumes you’re an ideal candidate for a mortgage. To get the most accurate picture of what you qualify for, speak to a mortgage broker about getting a mortgage pre-approval.
How to increase your mortgage affordability
If you want to increase how much you can borrow, thus increasing how much you can afford to spend on a home, there are few steps you can take.
1. Save a larger down payment: The larger your down payment, the less interest you’ll be charged over the life of your loan. A larger down payment also saves you money on the cost ofmortgage default insurance.
2. Get a better mortgage rate:Shop around for the best mortgage rate you can find, and consider using a mortgage broker to negotiate on your behalf. A lower mortgage rate will result in lower monthly payments, increasing how much you can afford. It will also save you thousands of dollars over the life of your mortgage.
3. Increase youramortization period:The longer you take to pay off your loan, the lower your monthly payments will be, making your mortgage more affordable. However, this will result in you paying more interest over time.
These are just a few ways you can increase the amount you can afford to spend on a home, by increasing your mortgage affordability. However, the best advice will be personal to you. Find alicensed mortgage broker near you to have a free, no-obligation conversation that’s tailored to your needs and free of charge.
More mortgage calculators:
- Mortgage Payment Calculator
- Land Transfer Tax Calculator
- Mortgage Default Insurance (CMHC Insurance) Calculator
- Mortgage Refinance Calculator
- Mortgage Penalty Calculator
- Amortization Calculator
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