Canada home affordability calculator
This calculator takes various financial inputs and looks to provide an estimate on how much home you can afford. If you want to see what it would take to afford a home around Canada, check out our article on the income required to afford a home.
What is considered affordable?
You may be asking what would be considered affordable? Taking guidance from the Canada Mortgage and Housing Corporation (CMHC) affordability is calculated as monthly housing costs not exceeding 32% of your average gross (pre-tax) monthly income. As well as having total debt payments stay below 40% of your pre-tax gross income.
While these ratios are provided as guidance for what is considered affordable. There are limits to these ratios if you look to secure an insured mortgage from CMCH. This means your gross debt service ratio (GDS) should not exceed 39% and your total debt service ratio (TDS) should not exceed 44%.
Knowing your GDS and TDS ratios are an important factor when purchasing a home.
How much home can you afford with a salary of $70,000 a year?
If you make $70,000 a year you may be able to afford a $345,000 mortgage. However, there are may factors that you should take into consideration that impact home affordability such as mortgage rates, down payment, CMHC insurance, amortization period and debt-to-service ratio.
We will use monthly mortgage payments so we should calculate what our monthly gross income is. At a salary of $70,000 your gross monthly income would be $5,833. Since the CMHC has a limit of 39% as a debt service ratio, this means that we can not exceed a monthly mortgage payment of $2,275 which is 39% of our gross monthly income.
A mortgage of $345,000 over a 25-year amortization period at a mortgage rate of 4.00% (stress tested at 6.00%) will be our max mortgage payment of $2,275. Since this assumes a mortgage down payment of $50,000 this mortgage payment includes the cost of CMHC mortgage default insurance of $9,685.