Mortgage Affordability Calculator

Determining how much mortgage you can afford depends on multiple factors, including your income, existing debt, and down payment. Here's a closer look at what lenders consider:

• Income: Lenders typically look at your gross monthly income to determine how much you can borrow. This includes your salary, bonuses, and any additional sources of income.
• Debt-to-income (DTI) ratio: Lenders evaluate your DTI ratio to ensure you’re not over-leveraged in terms of the amount of debt you are servicing. This ratio compares your monthly debt payments (credit cards, loans, etc.) to your monthly income. Most lenders prefer a DTI of 40% to 44% to approve a mortgage.
• Down payment: A larger down payment can reduce your loan size, allowing you to access better interest rates and increase your borrowing power. 
• Credit score: Your credit score influences the mortgage rate you're offered. Higher credit scores generally result in lower interest rates, which can increase your affordability.

Your mortgage affordability depends on more than just fitting monthly payments into your budget. Lenders assess several key factors, including the total income of all mortgage applicants, current debts (like car payments, daycare costs, credit cards), and the recurring expenses of homeownership (such as utilities, property taxes, and condo fees). Here are the two  debt service ratios that come into play:

• Gross debt service (GDS) ratio: This measures your mortgage principal, interest, property taxes, and heating costs divided by your total annual income. As a rule of thumb for mortgage qualification, your GDS ratio should be in a range of between 32 - 39%.
• Total debt service (TDS) ratio: This goes further by factoring in all monthly debt payments like credit cards, car payments and loan expenses, alongside your housing expenses, again divided by your annual income. Your TDS typically should range between 40% and 44%.

These metrics, combined with other elements such as your credit score, will help your lender determine how much mortgage you can afford.

Also read: How your credit score affects your mortgage.

In Canada, as per the Federal Department of Finance, as of December 15, 2024, home buyers must make a minimum down payment of 5% on the first $500,000 of their home’s purchase price, and then 10% on the remaining portion between $500,001 and $1.5 million. Home buyers must make a 20% down payment on properties priced at $1.5 million or more.

In addition, be sure to set aside 1.5% - 4% of the home's selling price for closing costs. These costs, incurred on the closing day, are often overlooked but should be factored into your overall cash requirements to avoid surprises.

Read more: New insured mortgage maximum extended to $1.5 million

Mortgage default insurance is mandatory for any home buyer who puts down less than 20%, often called a “high-ratio” borrower. This coverage is often also referred to as CMHC insurance, as the Crown Corporation has historically been the predominant provider of this coverage. The other two providers of mortgage insurance in Canada are Canada Guaranty and Sagen.

This insurance typically costs between 2.8% and 4% of your total mortgage amount. By backing lenders against the risk that a borrower could default on their mortgage, default insurance makes it easier for higher-risk borrowers to qualify for mortgages (and often at lower rates).

Instead of paying it upfront, the insurance premium is added to your monthly mortgage payments from the start of your loan term. This additional expense increases your total cost of borrowing. You may be able to buy a home sooner and with a smaller down payment, but the added insurance premium directly impacts your monthly mortgage affordability.

Also read: Insured vs. uninsured mortgages

If you select the “first-time home buyer” option, the calculator applies the appropriate federal and provincial rebates available to first-time home buyers, resulting in a lower land transfer tax amount.

The Estoppel certificate fee is commonly known as a "condo status certificate". It is issued by the condominium corporation as part of the due diligence process when purchasing a condominium, and essentially gives you an overview of the status of the condo unit and the corporation to allow you to make an informed decision.

Your salary is just one factor in mortgage affordability—lenders also look at your down payment, debt, and credit. Let’s explore two scenarios using a $70,000 annual salary and our Mortgage Affordability Calculator.

• Single applicant: With a $21,000 down payment (30% of income), you could afford a home worth up to $320,571.
• Two applicants earning $70,000 each: With a combined income of $140,000 and $42,000 down, you could afford up to $645,846.

These calculations assume the property is located in Toronto, ON.

Beyond a down payment, other hidden costs to consider when buying a home include mortgage loan insurance if your down payment is less than 20%, land transfer tax, property taxes, sales tax, legal fees, home inspection and appraisal fees. You should also factor in the price of home insurance, moving expenses, condo fees and renovations or repairs. All of these additional costs are an essential part of your home-buying experience and should be factored into your budget when determining your affordability.