How to calculate your maximum mortgage eligibility in Ontario?

When you’re house hunting in Ontario, it’s important to determine the maximum mortgage you’re eligible for.

Mortgage companies consider two primary factors to evaluate your affordability:

  • Your down payment amount
  • Your debt service ratios

Down Payment

On a home valued at $750,000 or less, the minimum mandatory down payment is 5% of the purchase price.

For homes priced between $750,000 and $1,000,000 buyers are required to pay a minimum of 5% of the first $500,000 and then 10% of the amount over $500,000.

Homes priced at $1,000,000 or more automatically require a 20% down payment.

Homes Valued

Minimum Down Payment

$750,000 or less

5%

$750,000 - $999,999

5% on first $500K

10% on amount over $500K

$1 million or greater

20%

Debt Service Ratios

Your debt service ratios include two numbers:

  1. Your gross debt service ratio, or GDS and
  2. Your total debt service ratio, or TDS

GDS is calculated by taking the sum of your mortgage payments, property taxes, heating costs and 50% of your condo fees (if applicable) and dividing it by your gross monthly income. If that number is below 32% you can afford the mortgage according to your GDS.

To calculate your TDS, you take the housing expenses calculated in GDS and add any other monthly debt such as credit cards, car payments, student loans or other loans, and divide that number by your gross monthly income. If this number is below 40%, you can afford the mortgage according to your TDS.

 

Gross Debt Service Ratio

 

 Total Debt Service Ratio

 

mortgage payments + property taxes + heating costs + 50% condo fees (if applicable)


monthly income

 

 

housing expenses (per GDS) + credit card payments + car and other loan expenses


monthly income

 

 

Ratio Should Be < 32%

 

Ratio should be < 40%

How to boost your maximum mortgage affordability

There are ways you can boost your mortgage affordability. Here’s how:

  1. Pay off debts to lower your TDS ratio and free up more income for your mortgage.
  2. Increase your down payment so you can afford more.
  3. Increase your income so you’re able to carry a larger monthly mortgage payment.

Just because you qualify for a specific mortgage amount, doesn’t mean that’s what you need to borrow. It’s a good idea not to overstretch yourself. Consider using the Total Debt Service + Savings (TDSS) ratio to make your calculations, which includes a 10% savings buffer. This puts you in a better position to handle the unexpected and save for the future.