Mortgage Affordability Calculator

RATESDOTCA’s mortgage affordability calculator will help you get an idea of how much you can afford to borrow for a home in Canada. However, it's important to consider other factors and expenses when making a final decision. You could connect with a mortgage broker to analyze your financial situation before going for mortgage approval to a lender. 
 

A lender calculates your mortgage affordability based on a few key factors, including debt, income, credit score, and down payment. It's important to note that different lenders may use slightly different criteria when calculating mortgage affordability. Additionally, some lenders may offer pre-approvals or pre-qualifications to give you an idea of how much you can afford to borrow before you start shopping for a home.

Buying a house is the biggest purchase you’ll make in your life. The amount of mortgage you can afford depends on what’s called your debt-to-income ratio, which helps you determine how much of your monthly income is needed to cover your debts, including your mortgage, credit card payments, loans etc. According to the Canada Mortgage and Housing Corporation (CMHC), your monthly expenses, including your housing costs, should be less than 42% of your income. This is a crucial factor that mortgage lenders look at when processing your mortgage application.

For example, if your mortgage is $1,000 a month and your expenses are $1,000, your total monthly costs come to $2,000. Now, let's say you have a gross monthly income of $6,000. That puts your debt-to-income ratio at 33% ($2,000 is a third of $6,000). This is a good ratio as it’s under 42%. A ratio over 42% means you’ll have to start paying off some of your debts before you think about purchasing a home.

Another factor that’ll help you decide if you can afford a mortgage is the size of the down payment. Your down payment should be at least 5% of the new property’s value, but ideally more. A higher down payment can lower your monthly mortgage payment and increase your mortgage affordability. For homes that cost more than $1 million, a down payment of 20% is required.

Our mortgage affordability calculator helps you calculate your maximum purchasing price to help you plan ahead and understand your buying power.

Note: Lenders also generally require that your monthly housing expenses alone be less than 39% of your gross monthly income.

Having a high TDS means that you may have trouble finding a mortgage rate you can afford.

A TDS ratio over 42% means you’ll have to do one or more of the following:

• Find a cheaper home
• Start reducing some of your monthly obligations
• Get a bigger down payment
• Add more income to the mortgage application, perhaps from a co-signor
• Extend your amortization
• Find a lender that allows higher debt ratios.
  
   

Buying a home is a huge milestone in your life, so it’s best to get expert advice. Once you know what you can afford, consult a good real estate agent to explore suitable homes. Make sure you tell your realtor your budget constraints and do not allow them to show you properties beyond your affordability limit.

Similarly, having a professional mortgage broker can make your mortgage application process smoother. They know the nuances of different lenders’ policies with respect to debt ratios, credit and income requirements. Their services are free and easily accessible, and a broker can negotiate the terms for you. They even handle all the necessary paperwork.

Buying a home involves several costs, including various taxes and fees. It’s important to properly estimate these costs to avoid exceeding your budget. Examples of additional costs include land transfer tax, survey fees, default insurance tax, appraisal costs, legal fees and home inspection fees. These are called closing costs. Together they can be anywhere from 1-4% of the purchase price. Lenders often require you to prove you have at least 1.5% of the purchase price in available cash for closing costs. That’s mandatory if you’re getting a high-ratio mortgage.

The Mortgage Payment Calculator helps you generate mortgage payment scenarios to see how different homes impact your budget. Before estimating your affordability, compare mortgage rates and see how they affect your payment. Just remember, lenders, base your debt ratios on a “stress-tested” payment. That means they simulate a higher payment based on rates that are at least two percentage points above typical rates. They do this to ensure you can afford higher rates in the future. This simulated payment is then used as a key input in lenders’ debt-ratio formulas.

Check out our Mortgage Guide for more information on how to apply for a mortgage.