Mortgage Affordability Calculator
Many risks and financial factors must be considered when figuring out how much you can comfortably afford to spend on a home. Let nesto’s Mortgage Affordability Calculator do the hard work for you!
Mortgage Affordability Calculator
What is Mortgage Affordability?
When searching for a home, one of the first steps is figuring out how much mortgage you can afford. This is known as mortgage affordability.
Representing the maximum price you could pay for a house and the corresponding mortgage, mortgage affordability is primarily based on your income, monthly expenses and the expenses associated with owning a home. It’s an essential step in the mortgage process as it clarifies whether you can comfortably afford your mortgage payments. Assessing your capacity to afford a house will also help you find the home in the right price range to fit your budget.
The easiest way to determine your capacity to afford a house, and the maximum price for which you qualify, is through nesto’s Mortgage Affordability Calculator.
Are you a first-time buyer?
How to use the Mortgage Affordability Calculator
nesto’s Mortgage Affordability Calculator is a practical, effective tool that analyzes your financial situation. The calculator will prompt you to input the required information and automatically calculate your affordability after a few simple steps.
To facilitate the process, you’ll want to have all your information ready based on the following:
This is the most important piece of the qualifying puzzle. Most clients have trouble with this, so we’ve created a short guide on calculating your income precisely and correctly using your payroll frequency. Regarding income – it’s better to be as precise as possible. Below is a chart showing you how to calculate your weekly, biweekly, monthly or annual income amount using your weekly guaranteed hours and hourly rate.
|Hourly Rate||Number of Hours||Formula||Sample|
|Weekly||35, 40, or 44 hours as guaranteed every week||$/hr x weekly hours guaranteed||$15/hr x 35 hrs/wk = $525 weekly|
|Biweekly||Twice that of weekly||$/hr x 2 x weekly hours guaranteed||$15/hr x 2 x 35 hrs/wk = $1050 biweekly|
|Monthly||Weekly hours multiplied by 52 divided by 12||$/hr x weekly hours guaranteed x 52 weeks in a year / 12 months||$15/hr x 35 hrs/wk x 52 wks / 12 months = $2275.05 monthly|
|Annually||Weekly hours multiplied by 52||$/hr x weekly hours guaranteed x 52 weeks in a year||$15/hr x 35 hrs/wk x 52 wks = $27,300.60 annually|
Permanent vs. 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 a 2-year average of your most recent T4s.
Bonus Income If you receive any bonuses, you need to average out two years’ income from your T4 (using the number in line 14, which reports your total income). With some exceptions, bonus income can only be used when already paid (essentially, you can’t count the eggs before they are hatched), and it must be received over two fiscal years from the same employer. Additionally, if your average decreases, you must use the lower of the two years.
Example In 2020, you earned $65K, and in 2021, you earned $60K then the average is calculated as [$65K + $60K] / 2 equals $62,500 however as income was declining over the two years – most lenders (including nesto) will only consider $60K for qualification purposes.
Sole Proprietor or Incorporated Income If you’re self-employed, as in a sole proprietor or incorporated, things can get a bit more complicated, so it is recommended that you book a meeting and speak with one of our mortgage experts who can work out your annualized income correctly from some specific lines in your T1 Generals (T1s) and Notice of Assessments (NOA). It would be best if you kept your T1s and NOAs handy during your meeting with one of our knowledgeable and commission-free experts.
Note: BFS individuals must be able to show that any taxes owed to the Canada Revenue Agency (CRA) are fully paid off before any mortgage commitment is issued. The lender will request a CRA Balance of Account Statement to confirm this.
Casual / Contract / Partnership Income – Generally, a 2-year average is calculated much like a combination of the above Bonus Income and/or Self-employed.
Spousal/Child Support – Generally, rules vary between lenders. Still, for these types of payments, you will need to show 2 months’ deposit history in a bank account in your name alongside a completed separation agreement/affidavit.
Canada Child Benefit (UCCB) – Rules will vary between lenders, but generally, only the federal portion can be used towards qualifying income for children under 12 years old. You will need the annual statement, proof of birth certificate and 2 months’ deposit history into a bank account in your name.
Canada Pension Plan (CPP) – You can use this income to qualify for your mortgage. You will need the T4A for the past year and 2 months’ deposit history into a bank account in your name.
Old Age Security (OAS) – You can use this income to qualify for your mortgage. You will need the T4A for the past year and 2 months’ deposit history into a bank account in your name.
Employer Specified Pension Plan (SPP) – You can use this income to qualify for your mortgage. You will need the pension statement for the past year and 2 months’ deposit history into a bank account in your name.
Investment Income (RIF/LIF/LRSP/LIRA) – Rules will vary between lenders; however, depending on the type of investment, you could use this income. Generally taxable income Alongside, you’ll need 2 months’ deposit history into a bank account in your name. Additionally, you will have to show that you have enough savings to sustain receiving the same payments over 5 to 10 years – or sometimes just over the mortgage term.
Here you have various options to figure out the correct amount. Conversely, you can let nesto’s Affordability Calculator estimate your property taxes. The chart below will list the best option for your transaction.
|Type of Transaction||Method|
|Purchase||MLS listing preferred (make sure that your realtor provides you one which has the property taxes listed) OR use the final bill amount stated on the current year’s bill (get a copy from the seller)|
|New Build||0.50% to 1.3% of the purchase price depending on the type of building, municipality and province – guidelines will vary from lender to lender.|
|Renewal / Refinance||Use the municipality’s final property tax amount stated on the current year’s bill.|
|Private Sale||Use the final bill amount stated on the current year’s bill (get a copy from the seller)|
Generally, most lenders, including nesto, will base the heating costs on square feet to keep it equitable for all clients in Canada. To simplify things, for up to 2000 square feet, you can use $100/month for your calculation.
The condo/strata/maintenance fees must be confirmed either by an MLS (purchase only), a current statement from the condo board indicating the exact amount and unit, or 2 months of current debit history on a bank account in your name. If you’re purchasing a pre-construction condominium, there should be a page outlining the expected condo fees in your full purchase agreement.
The value of the subject property can be confirmed by various means. You can use the purchase price listed on the MLS or something in the range you want. For renewals or refinances, you can use a conservative estimate of the value of your home or look at your previous year’s property assessment statement issued through your province or municipality.
The minimum down payment for purchase is 5% for properties under $1M and 20% for properties over $1M. Your down payment amount should be calculated as a net of any debts you already owe. For renewals and refinances, a down payment is interchangeable with the residual equity already built into your property from the time you purchased it.
The interest rate will depend on the transaction type (purchase, renewal, or refinance), loan-to-value (LTV) ratio and the date when the transaction is expected to be completed (closing date for purchase, maturity date for renewal, or enough time to complete the refinance). Please check out our Mortgage Rates page for more details regarding your selection of the correct rate for qualifying purposes.
Your mortgage term will depend on your choice and availability based on your need ranging from 1 to 10 years for fixed rates but only 5 for variable rate mortgages.
Your amortization (or the life of your mortgage) will depend on how quickly you want to be mortgage free. For a purchase, typically, the best rates apply for amortizations of 25 years or less. For renewals, you can only continue paying down your current amortization. For refinances, you can increase your amortization up to a maximum of 30 years, but in some cases, the rate may vary between your choice being 25 or 30 years.
Stress Testing Affordability
nesto’s Mortgage Stress Test Rates as of November 29, 2023
|LOWEST FIXED RATE||LOWEST VARIABLE RATE|
|qualifying rate is ||qualifying rate is |
|LOWEST FIXED RATE||LOWEST VARIABLE RATE|
|qualifying rate is ||qualifying rate is |
|LOWEST FIXED RATE||LOWEST VARIABLE RATE|
|qualifying rate is ||qualifying rate is |
|Mortgage Insurability||Downpayment / Equity||Amortization||Qualifying Criterion||Mortgage Qualifying Rate|
|Insured Purchase / Renewal||Less than 20%||Up to 25 years||Greater of the benchmark MQR or contract Rate + 2%||Fixed at |
|Insurable Purchase / Renewal||20% or more||Up to 25 years||Greater of the benchmark MQR or contract Rate + 2%||Fixed at |
|Uninsured Purchase / Renewal / Refinance||20% or more||Up to 30 years||Greater of the benchmark MQR or contract Rate + 2%||Fixed at |
Your mortgage qualifying rate (MQR) is the greater of 5.25% (also known as the benchmark minimum qualifying rate), or your mortgage contract rate + 2%. The mortgage qualifying criteria are set by the Office of the Superintendent of Financial Institutions (OSFI). The MQR could have differed between uninsured and insured mortgages in the past. However, since June 2021, they have both used the same mortgage qualifying rate. Prior to this convergence, uninsured mortgages qualified differently than insured mortgages.
How to Estimate Affordability
As part of the affordability assessment and qualification, lenders will take an in-depth look at your overall housing costs and any outstanding debt. Housing costs can be extensive and quickly add up – though not all are used to assess your mortgage affordability. To determine the amount they’ll lend to you, lenders are required to use calculations known as debt service ratios:
Gross Debt Service (GDS) ratio
This determines the percentage of your gross annual household income required to own your home. Lenders estimate your annual mortgage payments (principal and interest), property taxes, heating costs and a percentage of condo fees, if applicable.
GDSR = (Mortgage Payment + Property Taxes + Condo Fees/2 + Hydro) /Income
Total Debt Service (TDS) ratio
This is the percentage of your gross annual household income required to own your home, plus all other debts and loans. The calculation uses your GDS percentage and adds any other monthly payments you have, including loans or outstanding credit card debt. Additionally, if you have any spousal or child support payments to make will add to those other debts.
TDSR = (All debts in GDSR calculation + all other debts) / Income
Understanding your maximum GDS and TDS limit requirements for mortgage approval is important. Mortgage default insurance is mandatory on every mortgage with less than a 20% down payment to protect lenders in case of default – you can’t repay the mortgage.
Default insurance can be purchased through one of the 3 default insurers in Canada. Canada Mortgage and Housing Corporation (CMHC) – a crown corporation insures against the possibility of default on most of Canada’s prime (A lending) mortgages. There are 2 other mortgage default insurance providers though they are privately owned: Sagen (GE, also known as Genworth) and Canada Guaranty (CG).
Default insurance is not available for purchases or renewals where the property is valued over $1M property value or refinances.
|Transaction||Required Credit Score (FICO)||Max Allowable GDSR||Max Allowable TDSR|
|Purchase / Renewal under $1M||650 – 680||32||40|
|Refinance / Purchase over $1M||680+||35||42|
|Purchase / Renewal under $1M||680+||39||44|
Determining Your Down Payment
The minimum down payment when buying a home in Canada is 5% of the purchase price for a home valued at $500,000 or less and 10% for the portion of the purchase price above $500,000.
But, to avoid paying mortgage default insurance premiums, you must have at least a 20% down payment.
Example: If you’re buying a home for $750,000, your minimum down payment is $25,000 for the first $500,000 (5%) and $25,000 for the remaining $250,000 (10%) = $50,000 minimum down payment
What Does Mortgage Affordability Look Like Today?
Mortgage affordability is closely related to housing affordability. As home costs rise, so does the need for bigger mortgage payments to pay back the bigger mortgages needed to finance those houses. In this section, we will cover some basic data through graphs to visualize the differences in factors of homeownership throughout Canada.
This chart shows the composite average/benchmark home prices in each province and some of the main urban markets in Canada.
This chart shows composite average/benchmark home prices across Canada. Source: CREA
This table shows the monthly property taxes expected on the average property value.
This table shows expected monthly property taxes on the average-priced homes across Canada.
Mortgage Qualifying on 25 Years Amortization
This table shows monthly stress-tested mortgage payments over a 25-year amortization and the annual income required to service that mortgage on average-priced homes across Canada.
Calculations is based on a mortgage with a 25-year amortization, a 20% downpayment, provincially averaged property tax rate and includes $100 for monthly heating costs. Home prices are sourced from the most recent CREA report.
Mortgage Qualifying on 30 Years Amortization
This table shows monthly stress-tested mortgage payments over a 30-year amortization and the annual income required to service that mortgage on average-priced homes across Canada.
Calculations is based on a mortgage with a 30-year amortization, a 20% downpayment, provincially averaged property tax rate and includes $100 for monthly heating costs. Home prices are sourced from the most recent CREA report.
It’s important to note that, in addition to your down payment, you also need cash resources to cover the extra costs required to complete the purchase and close the deal.
These costs are not insignificant and need to be factored into your affordability assessment. In most cases, you’ll be required to provide an upfront cash deposit, which is used to demonstrate to the seller that you’re committed to buying the home. There’s generally no minimum required – the seller determines the amount – but a general rule of thumb is at least 5% of the purchase price. The deposit will go towards your down payment.
Closing costs, which cover legal and administrative costs when the transaction closes (e.g., lawyer fees, home inspection fees, land transfer tax, and title insurance), can also add up from 1% to 4% of the purchase price. It is important to note that the specific amount of your closing costs will depend on all the auxiliary services you may need and the land/property transfer tax rate for the province and municipality where your home will be located.
How to Increase Your Mortgage Affordability
There are several ways to increase your mortgage affordability and boost your buying power to ensure you’re viewed as a responsible borrower in the eyes of lenders. Here are some of the recommendations to increase your affordability:
- Pay off debts. Generally speaking, the more debt you have, the less you’ll be able to borrow (your debts will be netted against your down payment, meaning that if you owe more money than you have for a downpayment, then you don’t really have a downpayment).
- Curb your spending. Use a budget planner. Stick to your budget – make sure to give yourself some spending money so it is budgeted.
- Reduce open accounts. Too many credit cards or lines of credit can hurt you – especially if you have a running balance of more than 35% of the limit.
- Ensure your credit score is healthy. The better your credit rating, the more attractive you are to lenders; the minimum requirement is a score of 680. Best rates are available for scores 720 or above.
- Consider a lower-priced home. A less expensive home means a lower down payment and smaller monthly mortgage payments.
- Consider a higher down payment. A higher down payment means you’ll need a smaller mortgage, but you must be prudent in your planning. Taking time to save more can cost you more for the same property. Conversely, so can allocating all your savings for the down payment.
- Choose a longer amortization. This will lower your monthly repayments, making them more affordable.
Mortgage Affordability FAQ
How do I calculate my mortgage affordability?
When calculating your mortgage affordability, look at your overall housing costs and any outstanding debt. Housing costs include the mortgage payment, property taxes, heating, and condo fees, if applicable. Other costs may include spousal/child support as well as other debts. Affordability calculations known as debt service ratios – GDS & TDS – are used by lenders.
How much house can I afford based on my salary?
When calculating your mortgage affordability, look at your overall housing costs and any outstanding debt. Housing costs range from property to property; how much house you can afford based on your salary depends on the specific numbers. Mortgage affordability focuses on your income, monthly expenses and specific expenses associated with owning a home. The easiest way to determine affordability is through nesto’s Mortgage Affordability Calculator.
How do mortgage lenders check affordability?
Mortgage lenders check affordability by looking at your overall housing costs and any outstanding debt. Mortgage lenders focus on your income as a ratio of your expenses associated with owning a home – and separately consider any outside debts. Try nesto’s Mortgage Affordability Calculator.
How nesto works
At nesto, all of our commission-free mortgage experts hold concurrent professional designations from one or more provinces. Our clients will receive the best advice and care when they speak with experts exceeding the industry status quo.
Unlike the industry norm, our agents are not commissioned but salaried employees. Our honest and transparent advice guarantees free, unbiased advice on the most suitable mortgage solution for your unique needs. Our advisors are measured on the satisfaction and quality of advice they provide to their clients.
nesto is working hard to change how the mortgage industry functions. We start with honest and transparent advice, followed by our best rates upfront. We can offer you these best rates by using technology by providing a virtual and 100% online process to reduce our overhead costs.
By working remotely across Canada, all our mortgage experts and staff spend less time commuting to work and more time with their friends and family. This makes for more dedicated employees and contributes to our success with happy and satisfied clients.
nesto is on a mission to offer a positive, empowering and transparent property financing experience, simplified from start to finish.
Reach out to our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.
Interest Rate: Qualified using nesto’s fixed 5-year insured and uninsured rates as advertised on our website. For today, Wednesday, November 29, 2023, our example calculations are qualified on our lowest rates, which may or may not apply to your unique financing situation or long-term goals. Insured fixed-rate mortgages will be qualified at
Property Values: Home values collected from CREA or QPAREB are those presented as the composite benchmark or average prices for each city/province/region unless specified. They may be interchangeably called average home prices, though an average price may not be available for many regions outside Quebec.
Rents: Our monthly or year-over-year rental averages are sourced from Urbanation’s monthly Rentals.ca National Rental Report.
Mortgage Qualifying Criteria: Insured qualifying criteria are limited to a 39% gross debt service (GDS) ratio and up to 25 years of amortization. For insured mortgage transaction calculations, we have used a 20% downpayment, unless otherwise indicated, in our examples and excluded any mortgage default insurance (CMHC) premium. Uninsured qualifying criteria are limited to a 35% gross debt service (GDS) ratio and up to 30 years of amortization. We have used a 20% downpayment for uninsured mortgage transaction calculations in our examples. Unless otherwise indicated, a $100 monthly heating cost is attributed to the total monthly stress-tested payment. Municipal tax rates are the most recently shown on the applicable municipality’s website (1% used as default when unavailable or for a region with an unspecified mill rate). Mortgage default insurance is not permitted on purchases that have valuations of $1 million or more, amortizations exceeding 25 years, or on refinance transactions.
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