How much mortgage can you actually afford?
Lenders will happily tell you the maximum mortgage you qualify for. That number and what you can actually afford are rarely the same. Here is how affordability is calculated in Canada — and how to land on a number your budget can live with.
How lenders size you up: GDS and TDS
Two ratios decide most approvals:
- Gross Debt Service (GDS): your housing costs — mortgage payment, property tax, heat, and half of any condo fees — should stay around 35% of your gross income
- Total Debt Service (TDS): the same costs plus every other debt payment should stay under about 42% — up to 44% with a strong credit score
Lenders must also qualify you at a stress-test rate, typically your contract rate plus 2%, to prove you could absorb higher rates at renewal time.
The down payment piece
Minimum down payments are tiered: 5% on the first $500,000 of the purchase price, 10% on the portion between $500,000 and $1.5 million, and 20% above that. Putting down less than 20% means mortgage default insurance — a premium added to your loan, but one that unlocks lower insured rates.
The carrying costs nobody budgets
- Property taxes: roughly 0.5% to 2.5% of home value per year, depending on the municipality
- Utilities: heat, hydro, and water — often $300 to $500 a month for a house
- Maintenance: plan on about 1% of the home's value annually; more for older builds
- Insurance: home coverage your lender will require before closing
Tip: Lenders never count daycare, commuting, or hockey registration in their ratios — you should. Set your own ceiling at least 10% below your approved maximum, and stress-test your own budget against renewal-time rates.
The bottom line
Qualification math tells you what you can borrow; only your full budget tells you what you can afford. Know both numbers, shop below the bank's maximum, and keep a cushion for the costs that never appear in a lender's spreadsheet.
This article is for informational purposes only and does not constitute financial advice. Rates and product details change frequently — always compare current offers before making a decision.
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