Mortgage Affordability Calculator
Find out how much home you can afford based on your income, debts, and down payment. Includes the Canadian mortgage stress test.
Your Financial Details
Before taxes, include all household income
Car loans, credit cards, student loans, etc.
Stress test rate: 7.00%
50% of condo fees count toward GDS/TDS
Free account required to calculate
Enter Your Financial Details
Fill in the form on the left to see how much home you can afford based on Canadian lending rules and the mortgage stress test.
Complete Guide to Mortgage Affordability in Canada
Understanding how much home you can afford is the crucial first step in your home buying journey. In Canada, mortgage affordability is determined by a combination of your income, debts, down payment, and strict federal lending rules designed to ensure borrowers can handle their mortgage payments even if interest rates rise.
This calculator uses the same methodology that Canadian lenders use to determine your maximum purchase price, incorporating the mortgage stress test, GDS/TDS ratios, and minimum down payment requirements.
The Canadian Mortgage Stress Test Explained
The mortgage stress test is a federal requirement introduced by the Office of the Superintendent of Financial Institutions (OSFI) in 2018 and updated in 2021. It requires all mortgage applicants at federally regulated lenders to prove they can afford payments at a higher "qualifying rate" than their actual contract rate.
The qualifying rate is the higher of:
- 5.25% (the "stress test floor"), or
- Your contract rate + 2%
For example, if your lender offers you a 4.5% mortgage rate, you must prove you can afford payments at 6.5% (4.5% + 2%). If your rate is 3%, you'd qualify at 5.25% (the floor rate, since 3% + 2% = 5% is below the floor).
Why Does the Stress Test Exist?
The stress test serves several important purposes:
- Protection against rate increases: Ensures you can still afford payments if rates rise at renewal
- Financial stability: Reduces the risk of widespread mortgage defaults during economic downturns
- Cooling overheated markets: Limits how much buyers can borrow, helping moderate home price growth
According to the Bank of Canada, the stress test has been effective in reducing household debt vulnerability, though it does reduce purchasing power by approximately 15-20% compared to qualifying at the contract rate alone.
Who Must Pass the Stress Test?
The stress test applies to:
- All new mortgages at federally regulated lenders (banks, credit unions)
- All mortgage refinances
- All insured mortgages (down payment less than 20%)
- All uninsured mortgages at federally regulated lenders
Some provincial credit unions and private lenders may not require the stress test, but they typically charge higher interest rates to compensate for the increased risk.
Understanding GDS and TDS Ratios
Lenders use two key debt service ratios to determine how much you can borrow. These ratios compare your housing costs and total debts to your gross (pre-tax) income.
Gross Debt Service (GDS) Ratio
The GDS ratio measures what percentage of your gross income goes toward housing costs. The formula is:
GDS = (Mortgage Payment + Property Tax + Heating + 50% Condo Fees) ÷ Gross Income × 100
The maximum GDS ratio is typically 39%, though some lenders may allow up to 32% for borrowers with weaker credit profiles, or up to 44% for borrowers with excellent credit and strong financial profiles.
Total Debt Service (TDS) Ratio
The TDS ratio includes all your debt obligations, not just housing costs:
TDS = (Housing Costs + Car Payments + Credit Card Minimums + Student Loans + Other Debts) ÷ Gross Income × 100
The maximum TDS ratio is typically 44%. This means your total monthly debt payments (including housing) cannot exceed 44% of your gross monthly income.
GDS/TDS Example Calculation
| Item | Monthly Amount |
|---|---|
| Gross Monthly Income | $8,333 |
| Housing Costs (for GDS) | |
| Mortgage Payment | $2,200 |
| Property Tax | $400 |
| Heating | $150 |
| 50% of Condo Fees | $200 |
| Total Housing Costs | $2,950 |
| GDS Ratio | 35.4% ✓ |
| Additional Debts (for TDS) | |
| Car Payment | $400 |
| Student Loan | $200 |
| Total All Debts | $3,550 |
| TDS Ratio | 42.6% ✓ |
In this example, both ratios are within acceptable limits (GDS ≤ 39%, TDS ≤ 44%), so the borrower would qualify.
Minimum Down Payment Requirements in Canada
Canada has specific minimum down payment requirements based on the purchase price of the home. These rules are set by the federal government and enforced by mortgage insurers (CMHC, Sagen, Canada Guaranty).
| Purchase Price | Minimum Down Payment | Example |
|---|---|---|
| Up to $500,000 | 5% of purchase price | $400K → $20,000 |
| $500,001 - $1,499,999 | 5% on first $500K + 10% on remainder | $800K → $55,000 |
| $1,500,000 and above | 20% of purchase price | $2M → $400,000 |
Why 20% is a Key Threshold
A 20% down payment is significant because:
- No mortgage insurance required: You avoid CMHC premiums (2.8% - 4% of mortgage)
- Access to 30-year amortization: Lower monthly payments (though more interest over time)
- More lender options: Some lenders only offer uninsured mortgages
- Better rates: Some lenders offer slightly better rates for conventional mortgages
CMHC Mortgage Default Insurance
If your down payment is less than 20%, you're required to purchase mortgage default insurance. This insurance protects the lender (not you) if you default on your mortgage. The premium is typically added to your mortgage balance.
The three mortgage insurers in Canada are:
- CMHC (Canada Mortgage and Housing Corporation): Government-owned, largest insurer
- Sagen (formerly Genworth): Private insurer
- Canada Guaranty: Private insurer
CMHC Premium Rates (2024-2025)
| Down Payment | LTV Ratio | Premium Rate | On $500K Mortgage |
|---|---|---|---|
| 5% - 9.99% | 90.01% - 95% | 4.00% | $20,000 |
| 10% - 14.99% | 85.01% - 90% | 3.10% | $15,500 |
| 15% - 19.99% | 80.01% - 85% | 2.80% | $14,000 |
| 20% or more | 80% or less | Not Required | $0 |
Note: Ontario, Quebec, Manitoba, and Saskatchewan charge provincial sales tax on CMHC premiums, adding 8-9% to the premium cost.
New 30-Year Amortization Rules (December 2024)
In a significant policy change announced by the federal government, certain buyers can now access 30-year amortizations on insured mortgages starting December 15, 2024. Previously, insured mortgages were limited to 25-year amortizations.
Eligible buyers include:
- First-time home buyers: Those who haven't owned a home in the past 4 years
- New construction purchases: Buyers of newly built homes (regardless of first-time buyer status)
According to CMHC, a 30-year amortization can reduce monthly payments by approximately 10% compared to a 25-year amortization, though you'll pay more interest over the life of the mortgage.
How Lenders Calculate Your Income
Lenders use your gross (pre-tax) income to calculate affordability. However, how they calculate your income depends on your employment type:
Salaried Employees
For salaried employees, lenders typically use your base salary plus any guaranteed bonuses or commissions. You'll need to provide:
- Recent pay stubs (last 30 days)
- Employment letter confirming position, salary, and tenure
- T4 slips from the past 2 years
Self-Employed Borrowers
Self-employed borrowers face more scrutiny. Lenders typically use a 2-year average of your income as reported on your tax returns (Line 15000 of your T1 General). You'll need:
- 2 years of Notice of Assessments (NOAs)
- 2 years of T1 Generals with all schedules
- Business financial statements (for incorporated businesses)
- Articles of incorporation (if applicable)
Variable Income (Commission, Bonus, Overtime)
For variable income, lenders typically use a 2-year average and may discount it by 10-20%. Consistent history is important—declining income trends may result in using the lower figure.
Factors That Affect Your Mortgage Affordability
Several factors can increase or decrease how much you can borrow:
Factors That Increase Affordability
- Higher income: More income means higher GDS/TDS limits
- Larger down payment: Reduces the mortgage amount needed
- Lower interest rates: Reduces the stress test qualifying rate
- Longer amortization: Spreads payments over more time (if eligible for 30 years)
- Paying off debts: Lowers your TDS ratio
- Co-borrower: Adding a spouse or family member's income
Factors That Decrease Affordability
- Existing debts: Car loans, student loans, credit card balances
- High property taxes: Especially in cities like Toronto
- Condo fees: 50% count toward GDS
- Higher interest rates: Increases the stress test rate
- Poor credit: May limit you to lower GDS/TDS ratios
Tips to Maximize Your Mortgage Affordability
💡 Pay Down High-Interest Debt First
Credit card debt and car loans directly reduce your TDS ratio. Paying these off before applying can significantly increase your purchasing power.
💡 Get Pre-Approved Early
A mortgage pre-approval locks in your rate for 90-120 days and gives you a clear budget. It also shows sellers you're a serious, qualified buyer.
💡 Consider a Longer Amortization
If you're a first-time buyer or purchasing new construction, the new 30-year amortization option can increase your purchasing power by ~10%.
💡 Work with a Dual-Licensed Professional
A dual-licensed mortgage broker and real estate agent understands both sides of your purchase, helping you find a home that fits your budget and financing.
Frequently Asked Questions
How much house can I afford on $100,000 income?
With a $100,000 gross income, minimal debts, and a 5% down payment, you could typically afford a home around $450,000-$500,000, depending on property taxes, interest rates, and other factors. Use this calculator with your specific details for an accurate estimate.
What's the minimum down payment for a $600,000 home?
For a $600,000 home: 5% on the first $500,000 ($25,000) + 10% on the remaining $100,000 ($10,000) = $35,000 minimum down payment.
Do I need 20% down to avoid CMHC insurance?
Yes, a 20% down payment is required to avoid mortgage default insurance. With less than 20% down, you'll pay a premium of 2.8% to 4% of your mortgage amount.
Can I include rental income in my affordability calculation?
Yes, if you're buying a property with a rental unit, lenders may include 50-80% of the expected rental income in your calculations. You'll need a signed lease or rental appraisal.
How does the stress test affect first-time buyers?
The stress test reduces purchasing power by 15-20% compared to qualifying at the contract rate. However, first-time buyers can now access 30-year amortizations (as of December 2024), which partially offsets this impact.
What if my GDS is fine but my TDS is too high?
If your TDS exceeds 44%, you'll need to either reduce your other debts (car loans, credit cards, etc.) or look at a lower-priced home. Paying off a car loan before applying can significantly increase your affordability.
Sources & References
- • Office of the Superintendent of Financial Institutions (OSFI) - osfi-bsif.gc.ca
- • Canada Mortgage and Housing Corporation (CMHC) - cmhc-schl.gc.ca
- • Bank of Canada - bankofcanada.ca
- • Financial Consumer Agency of Canada (FCAC) - canada.ca/en/financial-consumer-agency
- • Government of Canada Housing Announcements - canada.ca