Overview
Determining how much mortgage you can afford in Canada depends on several interrelated factors, including your gross income, debt levels, down payment, current mortgage regulations, and applicable government programs. Canadian lenders follow federal guidelines to assess affordability, primarily focusing on your debt service ratios.
Key Factors Affecting Mortgage Affordability
1. Debt Service Ratios
- Gross Debt Service (GDS) Ratio: Should be below 39% of your pre-tax monthly income. This includes your mortgage payment, property taxes, heating, and 50% of condo fees if applicable.
- Total Debt Service (TDS) Ratio: Should be under 44% of your pre-tax monthly income. This includes all debts—car loans, credit cards, etc.—plus your housing costs.
2. Down Payment Requirements
- Minimum down payment:
- 5% of the first $500,000 of the home price
- 10% of the portion above $500,000 up to $1,500,000
- 20% for homes priced at $1,500,000 or more
- If your down payment is less than 20%, mortgage default insurance (commonly called CMHC insurance) is required, typically costing between 2.8% and 4% of your mortgage amount and added to your monthly payments.
3. Closing Costs
- Expect to budget an additional 1.5%–4% of the home’s price for closing costs on top of your down payment.
4. Credit Score and Employment
- Lenders will review your credit rating and employment stability, which can impact the approved mortgage amount and the rate offered.
Mortgage Affordability Example
| Scenario | Monthly Income | Down Payment | Home Price Desired | Other Debts | Likely Outcome |
|---|
| Example 1 | $5,000 | $50,000 | $250,000 | $450/month | Afforded |
| Example 2 | $5,000 | $35,000 | $350,000 | $450/month | Not Afforded |
- In Example 1, GDS and TDS are within limits, so the mortgage is likely approved.
- In Example 2, GDS and TDS exceed federal thresholds, so the mortgage would likely be denied.
How to Calculate Your Affordability
You can estimate your maximum affordable mortgage by using the following steps:
- Calculate your allowable housing costs: Multiply your monthly gross income by 39% (GDS) and 44% (TDS).
- Subtract your monthly debt payments (loans, credit cards, etc.) from your allowable housing costs.
- Estimate your down payment: The higher your down payment, the larger the mortgage you can afford and the less mortgage insurance you’ll pay.
- Adjust for mortgage rates: Rates affect your maximum loan size. Use an online calculator to simulate different rate scenarios.
Provincial Variations
- Land Transfer Taxes: Vary by province and city (e.g., Toronto has a double tax).
- First-Time Home Buyer Incentives: Some provinces offer additional rebates or tax credits.
- Regulation Differences: While federal rules are standard, some lenders may have stricter guidelines depending on the province.
Government Programs & Incentives
- First-Time Home Buyer Incentive: Shared equity program to reduce monthly payments.
- Home Buyers’ Plan (HBP): Withdraw up to $60,000 from your RRSP for your down payment.
- First Home Savings Account (FHSA): Save up to $8,000/year (max $40,000) tax-free towards your first home.
- CMHC Insurance: Enables buyers with <20% down payment to access insured mortgages.
Major Canadian Bank Offerings
| Bank | Affordability Calculator | Pre-Approval | Notable Features |
|---|
| TD | Yes | Yes | Advice for newcomers, flexible options |
| CIBC | Yes | Yes | FHSA guidance, advice resources |
| RBC | Yes | Yes | Detailed breakdowns, support |
| BMO | Yes | Yes | Simple interface, direct application |
Quick Steps to Determine Your Maximum Mortgage
- Gather your financial information: Income, debts, down payment.
- Use a mortgage affordability calculator from a major bank or trusted resource.
- Get pre-approved: This provides a precise estimate and locks in a rate.
- Explore first-time buyer programs and provincial incentives.
- Compare rates and terms across lenders for optimal affordability.
For a comprehensive platform to compare rates from top Canadian lenders and start your mortgage application, use theratefinder. The platform offers a sophisticated multi-step application and helps Canadians find the most competitive rates for residential, commercial, and construction loans. Start your application at theratefinder.ca/onboarding for a personalized mortgage solution.
Summary & Recommendations
- Affordability is based on your income, debts, down payment, and current stress-tested rates.
- Keep your GDS under 39% and TDS under 44%.
- Increase your down payment and pay down debts to boost affordability.
- Take advantage of federal and provincial first-time homebuyer programs.
- Always compare rates and get pre-approved before shopping for a home.
Next Steps:
Use a reputable mortgage affordability calculator, gather your financial documents, and start your application with theratefinder for personalized expert guidance and the best rates in Canada.