MoneySense Toolkit: The Mortgage Affordability Calculator

Mortgage Affordability Calculator

One of the first questions new home buyers should ask themselves is, “How much can I afford?” Affordability is an essential part of setting your home buying budget, and there are a variety of factors that affect it. If you’re looking to buy a home, you’ll want to know your mortgage affordability, and for that, you should start by consulting an online calculator.

What is mortgage affordability?

Mortgage affordability refers to the maximum mortgage you can afford to borrow, based on your gross income, down payment, debt repayments, and living expenses. In short, the more affordable your mortgage, the higher your maximum purchase price.

Many factors are used to determine the affordability of a mortgage, including your gross household income, monthly expenses related to owning the property (property taxes, heating costs, and condo fees), and your other debts. , such as your credit card payments and car loans. When completing a mortgage application, a lender may also consider your credit history.

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Why should you use a mortgage affordability calculator?

Using a mortgage affordability calculator is an important first step in determining how much you can spend on a home. These calculators take your gross income, debts, and other living expenses to calculate the maximum purchase price for your home.

The Mortgage Affordability Calculator above also allows you to specify your down payment amount and purchase location. You can then play with these inputs to see the impact they have on your maximum accessibility. For example, by paying off your debts or increasing your down payment, you will likely be able to spend more on the home. It can also help you decide if you can afford to buy in your ideal neighborhood.

It is recommended that you confirm the affordability of your mortgage with a mortgage broker or lender, who will take into account the nuances of your financial situation. That said, if you’re not ready for this step, a mortgage affordability calculator is the best place to start.

How it works?

To use the Mortgage Affordability Calculator, you will need to collect the following information:

  • Your income
  • Your co-applicant’s income (if applicable)
  • Your monthly debt payments, including credit cards, car payments, and other loan expenses
  • Your expected monthly living expenses in your new home, including property taxes, condo fees, and heating costs
  • The amount of your deposit

These factors are used by lenders to calculate two ratios that serve as guidelines for determining how much you can afford. They are called gross debt service ratio (GDS) and total debt service ratio (TDS).

Gross debt service ratio

Your GDS ratio is based on your monthly housing costs (mortgage principal and interest, property taxes and heating costs), divided by your gross household income. For example, suppose your gross household income is $100,000 per year. If your new home is costing you $3,000 per month, you would have a GDS ratio of 36%.