Mortgage Affordability Calculator
Use our Mortgage Affordability Calculator to determine how much you qualify for under the new 2020 national Mortgage Stress-Test Guidelines.
Keep in mind that you will need some funds available for closing costs which are not included in the mortgage amount and may include things like, Property Transfer Tax, Legal Fees, Title Insurance, Home Insurance, Net Strata Fees, Net Property Taxes, Net Utilities and others.
Current Prime Rate: 2.45%
Current Benchmark Rate: 4.79%
The key aspect of the mortgage affordability calculator is the calculation of your post-funding Debt Service Ratios. In other words, what your debt load will look like after the mortgage financing is complete.
Lenders look at two key debt service ratios when calculating the maximum mortgage amount you may qualify for, which are used to determine how much you can afford. These ratios are called the Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio. They take into account your gross total household income (income before taxes), monthly housing costs and overall debt load.
The Gross Debt Service Ratio is used to calculate your expenses directly related to owning your home, including mortgage payment (principal and interest), property taxes and heating expenses (P.I.T.H.). The ratio of these costs compared to your gross income should reach a maximum of between 35% and 39% depending on the lender guidelines. For condominiums and townhouses, P.I.T.H. also includes half of your monthly condominium fees. The sum of these housing costs as a percentage of your gross monthly income is your GDS ratio.
The second affordability rule is a limitation on your total monthly debt load called the TDS ratio (Total Debt Service). This includes housing costs, and all other debt including credit card payments, automobile payments, student loan payment and any required monthly loan expenses. This should not be more than 44% of your gross monthly income at the maximum, assuming you have a good credit rating.
STRESS TEST: So what is the Stress-Test and how is this all connected – simple version.
The stress-test means that under the federal mortgage guidelines, when the lender calculates your GDS and TDS ratios to determine the maximum amount you can borrow, they don’t use the “contract rate” (which is the rate you will actually be borrowing at). They now use an inflated rate which is approximately 2% higher than the rate you will be borrowing at. The result is that you will qualify for less than you can afford, based on what you are actually paying each month. This 2% is an arbitrary number but is the value that was chosen by the regulators, and each lender must comply with this underwriting rule.
PRACTICAL EXAMPLE: So what is the difference?
Well for simplicity sake let’s use a very basic example:
You have a gross household income of $100,000
You have no debt
Your Property Taxes will be $2000 per year
If you were to qualify at a contract rate of 2.1% —>
You could afford a mortgage amount of: $656,000
With a stress-test rate of 4.94% —>
You will now only qualify for $508,000
That is a difference of approximately 20%. You make the same income, and you are buying the same property. BUT you can borrow 20% Less…
That is the mortgage stress-test in practical terms.
Our Easy to Use Mortgage Affordability Calculator was recently featured on:
** Disclaimer: We are using the current 2018 stress-test guidelines and actual underwriting guidelines to produce these figures. In some cases you may be able to borrow more, or less. Each applicant and each mortgage is unique. If you are unsure please contact us and we’ll be happy to look at the specifics of your application.