This is a very good question. In fact, it is probably the question on everyone’s mind when they visit our site.
To get a specific answer to this question, we will have to arrange a time for a call and go through your information, in order to give you an accurate estimate.
That is the truth, and anything else you hear….well, in our opinion….you should be cautioned and give us a call….
Generally speaking, one of the key determinants (there are many) in what mortgage you can afford, is how much of a mortgage payment can you support, based on a formula.
There are 2 calculations actually. The first one is the Gross Debt Service Ratio (GDS)
You take all of the housing related costs:
Monthly:
- mortgage payment,
- property taxes,
- condo fees if applicable
- heating costs
You add all of these up, and you divide it by your gross monthly income.
The rule of thumb is that this percentage should not exceed 39%
The second calculation is the Total Debt Service Ratio (TDS)
This includes all of the housing related costs mentioned above
Plus any other debts you may have that you carry
Monthly:
- Car payment
- Student Loan
- Lease
- Child Support
- Alimony
- Personal loan
- Line of credit
- Credit Card
All of your non-household related debt + your household related debt.
You add these up and divide by your gross monthly income, and this percentage cannot exceed 44%.
In 2016, the Government added what is known as a “stress test” to these calculations above.
Today, the mortgage payment, used in these calculations is based off of an interest rate that is 2% higher than your actual rate that you are getting, or the benchmark rate set by the 6 major banks. Whichever is greater.
As of this writing, the benchmark rate is 5.19%
In other words, if you are getting an interest rate of 3% for 5 years, then the actual calculations would be based on a rate of 5.19% today, since 2% + 3% = 5% and the benchmark rate is greater at 5.19%.
This stress test, has resulted in the average Canadian being able to qualify for roughly 30% less than they were able to qualify previously.
There are ways to get some more affordability out of your calculations of course. And a mortgage broker has access to other products from other lenders which may be beneficial as well.
This should give you a good idea of one of the major components to help answer how much mortgage you can afford; however you really should reach out to get a complete assessment.