Canada Mortgage Affordability Calculator
Mortgage Affordability Calculator
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Why mortgage affordability is so important
Unless you’re buying a home with cash, you’re going to need a mortgage. The amount of that mortgage will determine how much house you can buy.
Mortgage affordability can be a tricky concept because there are so many factors at play.
It’s not simply a matter of how much money you earn or have been able to save. It’s also about how lenders perceive your ability to pay them back.
Until you know how much mortgage you can afford, there’s isn't much point in looking at houses — and there's a ton of risk involved with bidding on one.
That’s why affordability calculators like the one above are such helpful tools. They give you a sense of how ready you are to take the next step in your home buying journey.
Keep in mind that mortgage affordability estimates only consider your housing costs and debt. Your other expenses — groceries, commuting costs, lifestyle spending — while entirely separate, need to be considered when making a holistic homeownership budget.
Understanding NerdWallet’s affordability calculator
To estimate how much house you can afford, our calculator depends on the same information you’d give to a mortgage broker or bank mortgage advisor. The main difference is that you can input rough estimates here — no documentation required. After you enter your income and details related to your debts and mortgage, the calculator applies debt service ratios and mortgage stress test requirements to estimate the total home price and the maximum monthly mortgage payment you should be able to afford.
Consider the information you gather here a starting point. You should still speak to a mortgage professional and get pre-approved before starting your home search.
8Twelve has partnered with over 65 Canadian mortgage lenders to provide competitive rates on over 7,000 mortgage products. 8Twelve can quickly match you with a lender and mortgage type that meets your needs — even if your financial situation is unique.
Mortgage affordability factors
Income
Lenders need to see that you’re earning enough money to afford a monthly mortgage payment, housing-related expenses and other debts.
The income you need depends heavily on a home’s price. For example, a $60,000 annual income might be enough for a $250,000 condo in Edmonton. It won't be enough if your sights are set on a $900,000 townhouse in Toronto.
Down payment
The bigger the down payment, the less you need to borrow. At minimum, you’ll need to meet Canada’s minimum down payment requirements.
Making a larger than required down payment can also improve affordability by helping you qualify for the best mortgage rates.
Mortgage rate
The mortgage rate you’re offered will determine how much interest you’ll pay. The higher your rate, the bigger your monthly payment will be.
This is a major affordability component because interest will make up a huge part of your mortgage payment for the first several years.
Getting a lower mortgage rate generally requires presenting yourself as a low credit risk. You can do that by:
Paying your bills on time to strengthen your credit score.
Maintaining low debt service ratios.
Paying down your debts.
Mortgage default insurance
You're required to purchase mortgage default insurance if your down payment is worth less than 20% of a home's sale price.
Mortgage default insurance is kind of sneaky. . It gets added to your mortgage payment, where it generates more interest. In that sense, it acts as a double-whammy on affordability.
The mortgage stress test
The mortgage stress test has a tremendous impact on how much house you can afford. With the stress test, it’s not enough that you qualify for the rate your lender offers. You must be able to qualify at whichever of the following two rates is higher:
A rate of 5.25%.
The interest rate offered by your lender plus 2%.
If a lender offers you a five-year fixed mortgage rate of 5%, you actually need to qualify at 7%. If you can’t, you’ll be offered a smaller mortgage amount, which will decrease how much house you can afford.
Amortization period
The amortization period is how long it takes you to pay off your mortgage in full. The longer you extend it, the smaller your monthly payments become. This can be a useful strategy for lowering your monthly mortgage costs, but it will result in a longer, more expensive mortgage due to the additional interest you’ll pay.
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Other mortgage affordability factors
While the above factors formally determine how much money you can borrow, they may not actually translate to what you can afford. It’s essential to budget for each of the following expenses, too:
Closing costs. Generally speaking, you should set aside 1.5% to 4% of a home’s purchase price to cover closing costs, which include things such as legal and land transfer fees. A closing costs calculator can help get a better estimate of this expense.
Maintenance fees. If you buy a condo or townhouse, you may have to pay a maintenance fee every month you own your property. Lenders factor some of these costs into their underwriting. If you buy a single-family home, you’ll still have maintenance fees, but they won’t be as predictable.
Taxes and utilities. These annual and monthly costs, including property taxes and land transfer taxes, need to be accounted for.
Commuting costs. If you choose to buy a house in a community away from the one you work in, you need to factor in the cost of getting to your job. Will you be filling up your gas tank an extra time or two a week? Will you be taking public transit? These costs can really add up.
Moving costs. You might need to pay movers when you buy, and you may need to buy new household necessities like furniture.
Personal spending. How much you spend on non-housing expenses — kids, fun, travel, shopping — may need to be adjusted if you plan on paying off a mortgage.
Other expenses will inevitably come up while you own your home, so you may not want to borrow the maximum amount a lender offers you. When determining your overall budget, consider using after-tax dollars to give you a more realistic idea of how much money you’ll have access to each month.
5 ways to improve mortgage affordability
Maximize your income
Lenders need to see evidence that your income is both stable and sufficient enough to cover the cost of a mortgage. That might require boosting your income.
If getting a larger mortgage requires earning more money, you may want to consider taking on a side hustle, or purchasing a home that has a rental suite. Some of the income generated from renters can be added to your eligible income.
Not all income is equal in lenders' eyes. It can be easier to apply when you have a salaried position as opposed to a self-employed income stream, although many B lenders can help self-employed home buyers get mortgages.
Maintain a strong credit score and credit history
Your credit score and the financial history detailed in your credit report play a huge role in determining mortgage affordability.
A high credit score helps you qualify for the best mortgage rates. That’s why it’s advisable to take a peek at your credit score before reaching out to lenders to determine whether you should try to improve it.
Searching for a mortgage with a credit score below 600 could mean dealing with alternative or private lenders who typically charge far higher interest rates than chartered banks.
Boost your down payment savings
A large down payment can be a game-changer for increasing affordability. You’ll borrow less and pay less in interest, which will result in smaller mortgage payments.
Coming to the table with more savings can also improve affordability by making you look like less of a credit risk. Lenders may offer you lower mortgage rates and better loan terms.
Use the Home Buyers' Plan (first-time buyers only)
If you’re a first-time home buyer and are worried about how much house you can afford, familiarize yourself with assistance programs, such as the Home Buyers Plan, which allows you to use RRSP savings to buy a home.
Pay down your debt
Coming to a lender with manageable debt levels can help you get offered a lower interest rate and secure a more affordable mortgage.
Here’s a quick example of how debt can impact affordability using an $80,000 income, a $50,000 down payment and a mortgage rate of 4%:
If your monthly debts are $500, the maximum home price you can afford is $361,292.
If your monthly debts are $1,000, the max you can afford is $283,143.
The difference: $78,149.
Frequently asked questions
How big of a mortgage can I get if I make $100,000 a year?
How big of a mortgage can I get if I make $100,000 a year?
In addition to income, how much mortgage you get approved for depends on the size of your down payment, your credit score and how much debt you’re carrying.
A borrower earning $100,000 with a 640 credit score, a $10,000 down payment and $15,000 in credit card debt, for example, would probably be approved for less than someone earning $100,000 who has a credit score of 740, access to a $75,000 down payment and no credit card debt.
How much of my salary should go toward a mortgage payment?
How much of my salary should go toward a mortgage payment?
It’s recommended that no more than 39% of your gross salary should go toward housing expenses, including your mortgage principal and interest, property taxes, heating and, if applicable, half of your monthly condo maintenance fees.
How can I improve mortgage affordability?
How can I improve mortgage affordability?
Pay off your debts to improve your debt service ratios.
Maintain a high credit score.
Save a larger-than-required down payment.
Get a co-borrower.
Use the Home Buyers’ Plan to increase your down payment.
Will a mortgage affordability calculator tell me how much mortgage I’ll be approved for?
Will a mortgage affordability calculator tell me how much mortgage I’ll be approved for?
A mortgage affordability calculator won't tell you exactly how much mortgage you'll get approved for. That’s because lenders look at factors like your credit score before determining what mortgage interest rate to offer you. The interest rate greatly influences the overall cost of your mortgage.
A mortgage affordability calculator also can’t perform a stress test or assess any past blemishes that might be on your credit report. Only mortgage professionals can do that.
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Clay Jarvis
Clay Jarvis
Clay Jarvis