Mortgage Affordability Calculator

Are you looking for your dream home and wondering how much mortgage can I afford? Fortunately, with the rise of technology, there’s an easy way to answer that question. An affordability calculator can take the guesswork out of planning for one of the largest investments you are about to make.

Our mortgage affordability calculator is an essential tool that every potential homeowner should utilize before searching for their dream home. 

With this calculator, you can determine how much mortgage you can afford based on your income, down payment, monthly expenses, and other financial obligations. This will give you a realistic idea of your budget for purchasing a home and saves you from the disappointment of falling in love with a property that is out of your budget. 

Key Takeaways

  • Our mortgage affordability calculator can help potential homeowners determine how much mortgage they can afford based on income, expenses, and other financial obligations.
  • Stress test rules are another factor that will impact mortgage affordability.
  • Lenders use debt service ratios as one of the criteria to assess your ability to qualify for a mortgage.

Mortgage Affordability Calculator

Mortgage affordability is the maximum price you can comfortably afford and qualify for as a mortgage to purchase a home. You can calculate affordability based on income, monthly expenses, and all other expenses associated with owning a home. 

The easiest and quickest way to do this is by using our mortgage affordability calculator. The calculator will give you an accurate estimate of the maximum amount you can afford as a mortgage, so you can shop for a home that aligns with your budget. 

How Much Home Can You Afford?

When determining how much home you can afford, look at your current outstanding debts and projected overall housing costs. 

Outstanding total debts (a factor in affordability known as total debt service) include balances and payments on credit cards, car loans, personal and student loans, lines of credit, and spousal/child support. 

Housing costs (known as gross debt service) include mortgage payments, property taxes, heating, and condo/maintenance fees (if applicable). 

When calculating mortgage affordability, lenders will use debt service ratios as one of the many criteria to assess your ability to qualify for a mortgage. Debt service ratios measure your ability to repay your mortgage obligations, ensuring that your total debts do not exceed a percentage of your before-tax income. These ratios are the basis for determining how much money a lender is willing to lend to you for a mortgage. 

What Impacts Your Mortgage Affordability?

Mortgage affordability is based on the ratio of your qualifying income used to service your monthly expenses and all other expenses associated with owning a home. Other factors like stress test rules will impact your qualifying amount by limiting your borrowing capacity. The stress test qualifies you based on your contract rate plus 2% or 5.25%, whichever is higher. 

Annual Income: Enter your annual, before-tax income here. 

Co-Applicant Income: Enter annual before-tax income here for any applicants that will be on the mortgage. 

Income tip:  If you are not an annually salaried employee and need to calculate your hourly rate into an annual salary amount, you can use the below chart as a guide for completing this calculation. 

Hourly RateNumber of HoursFormula to CalculateExample
Weekly35, 40, or 44 hours guaranteed weekly$/hr x weekly guaranteed hours$18/h x 40 hrs/wk = $720 weekly
Bi-weeklyTwice that of the guaranteed weekly hours$/hr x weekly guaranteed hours x 2$18hr x 40 hrs/wk x 2 = $1,440 bi-weekly
MonthlyWeekly hours multiplied by 52 divided by 12$/hr x weekly guaranteed hours x 52 wks/yr / 12$18hr x 40 hrs/wk x 52 /12 = $3,120 monthly
AnnuallyWeekly hours multiplied by 52$/hr x weekly guaranteed hours x 52$18/hr x 40 hrs/wk x 52 = $37,440

Bonus income: If you receive any bonuses as part of your income, you will average 2 years of income from your T4 statements (line 14, which reports your total income). You can only include bonus income when it has already been paid out (some exceptions apply). You must show that you received bonus income over 2 fiscal years from the same employer. 

Some lenders will only consider the lower amount for qualifying purposes if your income + bonus decreases in the second year (ex., If your year 1 income plus bonus = $75k and year 2 income plus bonus = $70k, the lender will most likely use $70k instead of the average of the two). 

Permanent versus non-Permanent part-time income: Lenders will only consider your guaranteed hours to calculate qualifying income if you’re confirmed as a permanent part-time employee through your LoE (letter of employment); otherwise, the lender will calculate income through the 2-year average from your T4s

Maximum Down Payment: Enter the amount you have saved for a down payment here. 

Property Taxes: Enter the annual property taxes here if you know them, or you can let the affordability calculator estimate this cost for you. 

Co-ownership fees: Enter the monthly condo fees here (if applicable). If you are not purchasing a condo, enter 0, or if you’re unsure, you can let the affordability calculator estimate this cost for you. 

Note: The calculator will automatically consider 50% of your monthly amount.

Heating Costs: Enter monthly heating costs here. If you’re unsure, let the affordability calculator estimate this cost for you.

Debt Payments: These are the current debts that you have. Enter them in the appropriate fields below. 

Credit Card Debt: Enter the total amount owed across all credit cards here.

Car /Instalment / Student Loan: Enter your monthly car, personal, or student loan payments here.

Line of Credit: Enter the total amount owed on your line of credit here. 

Other Liabilities: Enter the total of all other liabilities here. This includes private lending or other obligations such as spousal/child support. 

How to Calculate Your Home Affordability

To simplify calculating home affordability manually, the general rule of thumb is that the maximum mortgage you can comfortably afford is 3x to 3.5x the average of your past 2-year taxable gross income. 

For example, if your 2-year average is $90,000, the maximum mortgage you can comfortably afford is between $270,000 to $315,000.  

This rule of 3x to 3.5x your income will change as rates increase or decrease and if you have any other significant liabilities to consider, like car, personal, or student loans. As well, spousal/child support, lines of credit, or secondary financing on other liabilities will also impact your qualifying mortgage amount 

How to Estimate Affordability

Not all housing costs are considered when assessing affordability, though they can still add up quickly. Lenders use gross debt service (GDS) and total debt service (TDS) ratios to determine your qualifying amount. 

Gross Debt Service (GDS) ratio: The GDS ratio is the expected monthly housing costs for your new home, including expected mortgage payments, heat, property taxes, and if applicable, 50% of condo/maintenance fees. The total costs are divided by your total monthly household pre-tax income and reported as a ratio. 

Your GDS must be no more than 32% for uninsured mortgages and 39% for insured mortgages. Lenders may provide exceptions to this rule if your financial situation is strong.

To calculate your GDS:

GDS = (Mortgage Payment + Property Taxes + Heat + [Condo fees/2]) / Monthly Income

Total Debt Service (TDS) ratio: The TDS ratio is the expected monthly costs for your new home, plus total monthly debt payments. These debt payments will consider a percentage of your balance on your revolving credit facilities, which include credit cards and lines of credit. 

For personal or student loans, car loans or leases, and spousal/child support, lenders will consider the actual monthly payment. The total costs are divided by your total monthly household pre-tax income to report as a ratio. 

Your TDS must be no more than 40% for uninsured mortgages and 44% for insured mortgages. Lenders may provide exceptions to this rule if your mortgage application is strong.

To calculate your TDS:

TDS = (All debts in GDS calculation + all other debts) / Monthly Income

How to Increase Your Mortgage Affordability

There are ways you can increase your mortgage affordability and qualify for a higher amount. These recommendations will help provide better financial security and make you more favourable to lenders. 

Pay off more debts: The more debt you have, the less you can qualify to borrow. Prioritize paying down or off the debts with the highest interest rates first, then look at what other lower-interest debts you can pay down or off. 

Lower your spending: Start a budget and stick to it. Budget everything that comes in and goes out (including spending money) so you can assess your cash flow and find areas where you may be able to save. 

Reduce open accounts: Having multiple credit cards or lines of credit open can hurt your credit score, especially if they all have balances of more than 35% of the limit. 

Improve your credit score: The higher your credit score, the more attractive you are to lenders. The best interest rates are usually reserved for those with a credit score of 720 or above. 

Put in a higher down payment: If you put down a larger down payment, this will lower the amount you need for the mortgage. Using a larger down payment can also increase your purchasing power, as you can make up the difference between what you qualify for a mortgage and the purchase price with a larger down payment. 

Choose a longer amortization: You can opt for a longer amortization to lower your monthly mortgage payments, making them more affordable. However, you should be aware that this will increase the total interest-carrying costs over the life of your  mortgage. You can offset this by selecting an accelerated payment schedule. 

Frequently Asked Questions

How do I increase my home affordability?

The main ways you can increase affordability are by working to pay down existing debts and setting up a budget that you can stick to while identifying areas where you can save.

What income do you need for a $500k house in Canada?

Using the 3x to 3.5x income rule of thumb, you currently need a combined gross (before tax) household income of between $143k to $167k to afford a $500k home in Canada.

How easy is it to own a home?

 How easy it is to own a home depends on your income, savings, and your desired location. Equipping yourself with knowledge of the housing market, interest rates, and qualifying rules can help make the process of owning a home less complicated.