Mortgage Affordability Calculator
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.
WATCH: How much mortgage can you afford in 2023?
How do I calculate my affordability?
What is the minimum down payment I can make?
What is mortgage default insurance?
How is CMHC insurance calculated?
How can you avoid paying CMHC insurance?
How much mortgage can I afford?
What is the difference between a high-ratio and low-ratio mortgage?
What is the maximum mortgage amortization in Canada?
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?
What is the Estoppel certificate fee?
Jamie David, Sr. Director of Marketing and Mortgages
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.
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 on the look out for. To learn more about mortgage affordability and how our calculator works, have a read of the information below.
Spring 2023 Canadian mortgage affordability update
Mortgage rates in 2023 remain higher than they did during the peak of the pandemic, following eight consecutive interest rate hikes implemented by the Bank of Canada between March 2022 and January of this year. That’s brought the central bank’s Overnight Lending Rate – considered the benchmark cost of borrowing for variable mortgage rates – from a pandemic-era low of 0.25% to 4.5% today.
These increased debt servicing costs –including higher monthly payments for variable mortgage holders and those with lines of credit – have effectively reduced overall homeownership affordability, even as real estate prices have considerably softened over the past year.
According Q1 Home Affordability Report data compiled by Ratehub.ca, the required income needed to purchase a property has increased in nine out of 10 major markets across Canada, compared to January 2022. The study finds that the city where affordability has eroded the most is Victoria, where the necessary home buyer’s income has increased by $25,500 year over year. The city of Vancouver came in second place in terms of worsening affordability, with an increased income requirement of $23,350. The City of Toronto, meanwhile, came eighth, reflecting an increase of $7,620.
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 partner’s income (or your co-applicant’s income), 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.
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. The rule of thumb is that you can afford a mortgage where your monthly housing costs are no more than 32% of your gross household income, and where your total debt load (including housing costs) is no more than 40% of your gross household income. This rule is based on your debt service ratios.
Lenders look at two ratios when determining the mortgage amount you qualify for, which generally indicate how much you can afford. 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 exceed 32% of your gross household monthly income. For condominiums, P.I.T.H. also includes half of your monthly condominium fees. The sum of these housing costs as a percentage of your gross monthly income is your GDS ratio.
The CMHC’s second affordability guideline is that your total monthly debt load, including housing costs, should not be more than 40% of your gross monthly 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.
While the general guidelines for GDS and TDS are 32% and 40% respectively, most borrowers with good credit and steady income are allowed to exceed these guidelines.
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.
Your down payment is 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:
= 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)
= 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)
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).
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 homebuyers 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 of mortgage 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 your amortization 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 a licensed mortgage broker near you to have a free, no-obligation conversation that’s tailored to your needs and free of charge.