How Much House Can I Afford? (Canada 2021 Mortgage Tips)

Thinking of buying a house in Toronto or the GTA? Before you go shopping for that dream home, you’ll want to know exactly how much house you can afford.

But, how do you calculate that, especially with all the complicated mortgage rules? In this video, I’m going to show you 3 simple and easy steps to find the maximum purchase price for your specific needs.

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Victor here, and welcome to a series of videos that help Canadians get approved for a mortgage. If you’re new here, and want to receive easy to understand mortgage tips, consider subscribing.

“How Much House Can I Afford?”- True Meaning

So, “how much house can I afford to buy?” Usually, when I’m asked that question, what I’m really being asked is, “how much can I borrow for a mortgage”?  Did you know that Canadian banks follow a series of rules and formulas to determine your mortgage affordability? But, they’re not always easy to follow.

The Problem With Most Online Affordability Calculators

You could search on Google for a “mortgage affordability calculator”. Here’s the problem. Most online calculators give different results.

In fact, I did an experiment. Using the exact same scenario with calculators from all big 6 banks, plus from 4 other random sites, these were the results.

how much house can I afford? Comparison chart

Not only were all the results different, but the maximum purchase price also ranged from $295,000 all the way to $587,000! So, why the big difference? And which one can I trust?  Before you make an offer on a home, you’re going to need accurate results. There’s no room for guessing. As the phrase goes, knowledge is power. But relying on incorrect information can definitely lead you to frustration and disappointment.

Step 1: Do Your Homework

So here’s step number 1. Time to do a bit of homework. No excuses, it should only take a few minutes. You’ll need to collect the following information about your finances. First, Determine your total gross annual household income. That is, your total income before taxes. Next, add up all your monthly payments to service debt. So this would include car payments, credit card and lines of credit, student loans, child or spousal support, and any other debt payments. Finally, determine what you can comfortably make as a down payment.  I must emphasize that you want to be as accurate as possible to get accurate results.

Step 2: Use A Reliable Mortgage Affordability Calculator

Step two. Now that you have collected information about your finances, it’s time to use a reliable, up-to-date online calculator. But which one? As I showed before, different calculators yield a huge range of results. Why the big range? Well, it’s entirely possible that at some point in time some of these calculators were giving correct results.  But mortgage rules are always changing.

This is why I designed my own calculator, ensuring to use the latest mortgage rules as of January 2021. You’ll get a very good idea of your maximum home affordability, regardless of your income, debt, and size of down payment.

To get to the calculator, click on this link or the picture below.

Canadian mortgage affordability calculator
Mortgage Stress Test Calculator

How To Use The Mortgage Affordability Calculator

Here’s a quick tutorial. The calculator is pre-populated with default numbers. Simply replace them with the numbers you collected in step one. First, enter your down payment. For the interest rate, leave it as it is, or change it to your desired rate. 

In the next section, enter your total gross annual household income. Leave the property tax, heating cost, and condo fee as is, unless you know the specific costs for your property.

Next, enter all your monthly debt payments for credit cards, lines of credit, car payments, and any other monthly debt obligations.  Scroll down, and see your results instantly.

You’ll see the maximum purchase price and mortgage amount you can afford. In addition to that, you’ll also be given your actual mortgage payment, based on the interest rate given at the top of the calculator. Your down payment, as a percentage of the purchase price. And if it’s less than 20%, the CMHC premium for default insurance. Finally, note the rate determined for the stress test. To learn more about that, I’ve created a video to explain how it works. The link is here.

Now keep in mind, this is the maximum purchase price, as determined by Canadian bank mortgage rules. It certainly does not mean that you should go and buy a home at this price. You need to consider your own financial obligations, lifestyle and spending habits, and what realistically works for you.

Step 3: Get A Mortgage Pre-Approval

Did you get your answer to “how much house can I afford?” If you’re happy with the results, it’s time for step 3. Getting pre-approved for a mortgage. Why is this step so important? Because it will confirm how much mortgage you can afford and give you the exact rate you qualify for.

Besides, applying for a mortgage pre-approval is free, and doesn’t commit you to any specific lender. But it does hold the mortgage rate you are offered for 30 to 120 days. This means you’re protected if interest rates rise while you’re shopping for a home.

Have any questions? Then please don’t hesitate to contact me.

Navigating all these mortgage rules can be complicated, but I’m here to help! Book your free discovery call and we’ll figure it out together.

Victor Camba B.Eng

Victor is a leader in sales and business development, with nearly 20 years experience in alternative mortgages and private lending in real estate. His ongoing success has been attributed to his proven ability to connect and cultivate relationships with clients, investors and advisors. He has a successful track record of identifying and developing proven sales strategies for investments and financing instruments, mortgages, and insurance. By providing customized marketing and sales collateral, coaching and training, he has helped clients achieve sustainable prosperity and build long-term relationships.