Home.ca’s Mortgage Affordability Calculator is useful to calculate how much you can afford in buying a home. Normally affordability is based on your (household) income, the monthly expenses you have (car, credit cards, etc) and other costs associated with owning a home such as property taxes, heating costs and condo fees (in the case of a condominium).

How to estimate affordability?

Normally lenders take into consideration 2 rations set out by the Canada Mortgage and Housing Corporation (CMHC) when determining the mortgage amount that you can qualify for. For most people this generally indicates how much they can afford.

These “ratios” set out by CMHC are called the “Gross Debt Service (GDS)” and “Total Debt Service (TDS). As part of the calculations they take into account your monthly income, housing costs and your overall debt. For those of you interested in the formulas for these calculations they are:

GDS = (Mortgage Principal Interest + Taxes + Heating Expenses) / Annual Income

TBS = (Housing Expenses + Credit Card Interest + Car Payments + Other Loan Expenses) / Annual Income

The recommendations by CMHC are that the Gross Debt Service Ratio (GDS) should not be lower then 32 percent, and that the Total Debt Service Ratio (TBS) should be lower then 40 percent. Both of these calculations can be useful in determining what you can afford and how much of your income you should dedicate towards your mortgage.

Mortgage Down Payment

The minimum down payment in Canada is 5%. Any mortgage with less then 20% down payment is also known as a high-ratio mortgage and therefore requires you to purchase additional mortgage insurance (known a: mortgage default insurance or CMHC insurance).

Other expenses

When buying a home it’s important to consider that you’ll have other costs payable on closing day (beside your down payment and CMHC Insurance) such as real estate agents, lawyers, inspectors, etc. Normally buyers should set aside 1.5%-4% of their home buying price to cover additional closing costs.

Disclaimer: The above mortgage affordability calculator is for demonstration purposes only and may not reflect actual numbers for your mortgage. The Calculator assumes constant interest rate throughout the amortization period, interest calculated semi-annually not in advance for fixed interest rate mortgages, and other assumptions that maybe different than what your bank or broker offers you. Mortgage prepayments (e.g. additional payments) may be subject to a prepayment charge which is not reflected by the calculator.