The question is not “how much will a bank give me?” — it is “how much home can I actually afford without being house-poor?” Here is how the math works in Canada in 2026.
Two key ratios every mortgage lender uses
Canadian mortgage approval is governed by two debt-to-income ratios:
GDS: Gross Debt Service Ratio (≤39%)
Monthly housing costs ÷ gross monthly income
Housing costs include:
- Mortgage principal + interest (at stress test rate)
- Property taxes (annual estimated ÷ 12)
- Heating costs ($100/month is the standard estimate used by most lenders)
- 50% of monthly condo fees (if applicable)
TDS: Total Debt Service Ratio (≤44%)
(Monthly housing costs + all other debt payments) ÷ gross monthly income
Other debt payments include:
- Car loans or leases
- Minimum credit card payments
- Student loan payments
- Lines of credit payments
- Any other monthly debt obligations
If either ratio exceeds the limit, the lender cannot approve the mortgage (under federally regulated lender rules).
The stress test (2026)
Since 2018, all federally regulated lenders must qualify mortgages at the stress test rate: the higher of:
- Fixed minimum floor: 5.25%
- Contract rate + 2.00%
With 5-year fixed insured rates around 4.50%–5.25% in early 2026, the stress test rate is approximately 7.25%–7.50%.
This means your GDS and TDS ratios are calculated at 7.25%+, not at your actual rate. It significantly reduces your maximum qualifying amount.
Effect of stress test: On a $600,000 mortgage, the monthly payment at 5.00% (25-year amortization) is approximately $3,490. At 7.25%, it is approximately $4,270. The lender uses $4,270 in the ratio calculation — meaning you need to earn roughly 23% more to qualify for the same mortgage amount compared to qualifying at the actual rate.
Salary-to-affordable-purchase table (2026)
Assumes: 20% down payment, no other debts, $200/month property tax + heat estimate, 25-year amortization, stress test at 7.25%.
| Gross household income | Approx. max mortgage | With 20% down: max purchase price |
|---|---|---|
| $60,000 | ~$240,000 | ~$300,000 |
| $80,000 | ~$325,000 | ~$405,000 |
| $100,000 | ~$415,000 | ~$520,000 |
| $120,000 | ~$500,000 | ~$625,000 |
| $140,000 | ~$590,000 | ~$740,000 |
| $160,000 | ~$680,000 | ~$850,000 |
| $180,000 | ~$770,000 | ~$960,000 |
| $200,000 | ~$855,000 | ~$1,070,000 |
All figures are approximate. Actual pre-approval depends on credit score, employment type, existing debts, property taxes, and lender-specific policies.
How existing debt shrinks your maximum mortgage
Monthly debt payments reduce your TDS room directly:
| Monthly debt payment | Approximate reduction in max mortgage |
|---|---|
| $300/month car payment | ~$55,000 less mortgage |
| $500/month car payment | ~$90,000 less mortgage |
| $1,000/month in debt payments | ~$180,000 less mortgage |
| $300/month minimum credit card | ~$55,000 less mortgage |
Practical implication: Paying off a $500/month car loan before applying for a mortgage could allow you to buy approximately $90,000 more house for the same income. If you are close to a purchase, eliminating or reducing non-mortgage debt in the 6–12 months before applying can materially improve your qualifying amount.
The “affordable” vs “qualifying” difference
Qualifying for a mortgage and affording the home are not the same thing.
What lenders check: GDS ≤39%, TDS ≤44% at the stress test rate.
What you should check:
| Affordability test | Threshold |
|---|---|
| Monthly housing costs | ≤28%–30% of take-home (after-tax, not gross) income |
| Total debt payments | ≤36% of take-home income |
| Emergency fund after closing | At least 3 months of revised expenses |
| Closing costs reserved | 1.5%–4% of purchase price |
| Annual home maintenance budget | 1%–2% of home value |
A family earning $120,000 gross income ($90,000 after tax) that qualifies for a $620,000 purchase might have monthly housing costs of $3,800–$4,200. That is 51%–56% of their after-tax income — leaving little room for savings, retirement contributions, or unexpected expenses.
The rule: Don’t borrow to the limit of your qualification.
Minimum down payment scenarios
| Purchase price | Minimum down | CMHC premium (approx.) |
|---|---|---|
| $500,000 | $25,000 (5%) | $19,000 |
| $700,000 | $45,000 (see table) | $20,100 |
| $900,000 | $65,000 | $26,010 |
| $1,200,000 | $95,000 | $35,615 |
| $1,500,000 | $300,000 (20% required) | $0 |
See: How Much Down Payment Do I Need? for the full breakdown.
Steps to figure out your actual budget
- Get a pre-approval — a mortgage broker or lender will run your actual ratios against your income and credit profile
- Research property taxes in target neighbourhoods — wildly different by municipality
- Estimate condo fees if applicable (ask your realtor for comparable buildings)
- Calculate your after-closing reserves — ensure you have an emergency fund and closing cost buffer
- Run your own TDS at actual payment — use your real mortgage rate (not stress test) to check your comfort level
Related resources
- How Much Down Payment Do I Need? — Minimum by price tier and CMHC cost
- Why Is My Mortgage Payment Going Up? — What happens at renewal
- How Much Emergency Fund Do I Need? — Maintaining liquidity after buying