A Guide to Calculating How Much Mortgage You Can Afford

Thinking About Buying a Home?

Buying a home is a major financial commitment, and one of the most important questions you need to ask yourself is: How much mortgage can I afford?

Many homebuyers make the mistake of focusing only on the maximum loan amount a lender will approve. However, just because you qualify for a certain amount doesn’t mean it’s the right amount for you. 

You need to factor in monthly payments, interest rates, lifestyle costs, and future financial stability to make a smart decision. Let’s walk you through the key factors that determine mortgage affordability.

Key Factors That Determine Your Mortgage Affordability

Before you start house hunting, it’s essential to understand the financial elements that impact how much you can comfortably borrow.

1. Your Gross Income

Lenders assess your annual household income to determine how much you can afford to borrow. The higher your income, the more mortgage you may qualify for.

2. Debt-to-Income Ratio (DTI)

Your existing debt (credit cards, car loans, student loans) plays a crucial role in affordability. Lenders use the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to assess your financial health:

  • GDS Ratio (Max 39%): This includes mortgage payments, property taxes, heating costs, and condo fees (if applicable).
  • TDS Ratio (Max 44%): This includes GDS plus any other debt payments (credit cards, car loans, etc.).

Example: If you earn $100,000 per year, your total monthly debt payments should not exceed $3,667 (44% of income ÷ 12 months).

3. Down Payment

In Canada, the minimum down payment depends on the property price:

  • Less than $500,000: Minimum 5% down
  • $500,000–$999,999: 5% on the first $500,000, 10% on the remainder
  • $1 million or more: Minimum 20% down (no CMHC insurance allowed)

A larger down payment reduces your loan amount, lowering monthly payments and interest costs.

4. Interest Rates

The mortgage rate you secure directly affects affordability. A higher interest rate means higher monthly payments, so shopping around for the best rate is crucial.

5. Loan Term & Amortization Period

  • Shorter Terms (e.g., 15 years): Higher monthly payments, but lower total interest paid.
  • Longer Terms (e.g., 25–30 years): Lower monthly payments, but more interest over time.

How to Calculate How Much Mortgage You Can Afford

Now that you understand the key factors, let’s go through a step-by-step method to determine your ideal mortgage budget.

1. Use the 32/40 Rule

A common guideline in Canada is the 32/40 Rule, meaning:

  • No more than 32% of your gross income should go towards housing costs (GDS).
  • No more than 40% of your gross income should go towards total debt (TDS).

Example Calculation:

Let’s say you earn $80,000 per year.

  • Step 1: Maximum monthly housing costs = $80,000 × 0.32 ÷ 12 = $2,133
  • Step 2: Maximum monthly total debt payments = $80,000 × 0.40 ÷ 12 = $2,667

This means your total mortgage payment (including principal, interest, taxes, and heating) should not exceed $2,133 per month.

2. Consider Closing Costs & Additional Expenses

When budgeting for your mortgage, don’t forget to include:

  • Closing costs (1.5%–4% of home price): Legal fees, land transfer tax, title insurance.
  • Home insurance: Required by lenders to protect the property.
  • Maintenance & utilities: Monthly homeownership costs like repairs and bills.

5 Tips to Ensure You’re Not Overextending Your Budget

1. Get Pre-Approved for a Mortgage

A pre-approval from a lender helps you understand how much you can borrow based on your financial profile.

2. Aim for a Lower Debt-to-Income Ratio

Instead of maxing out the lender’s limit, try to keep your TDS ratio below 36% for financial flexibility.

3. Save for a Larger Down Payment

A bigger down payment reduces your loan size, helping you secure better interest rates and avoid mortgage insurance.

4. Plan for Future Expenses

Consider potential job changes, family growth, or market fluctuations before committing to a large mortgage.

5. Work with a Mortgage Broker

A professional broker like Pradip Maheshvari can help you explore mortgage options, secure the lowest rates, and structure your loan effectively.

Final Thoughts: Get the Right Mortgage for Your Budget

Understanding how much mortgage you can afford is crucial to making a smart home-buying decision. By factoring in your income, debts, down payment, and long-term financial goals, you can ensure that you’re purchasing a home within your means.

If you need personalized guidance, Pradip Maheshvari Mortgages can help you calculate affordability, get pre-approved, and secure the best rates.

Ready to find out your mortgage affordability? 

Get In Touch Now!

5 Quick Ways You Can Improve Your Credit Score in Canada

Introduction: Struggling With a Low Credit Score? Here’s How to Fix It!

Your credit score plays a crucial role in your financial life, affecting everything from mortgage approvals to interest rates on loans. If you’re wondering, “How can I improve my credit score in Canada quickly?”, the good news is that small changes can make a big difference.

In this guide, we’ll walk you through five effective ways to boost your credit score fast and regain control of your financial future.

1. Pay Your Bills on Time – Every Time

Late or missed payments negatively impact your credit score. Your payment history accounts for 35% of your credit score, making it the most important factor.

Quick Tip: Set up automatic payments or reminders to ensure you never miss a due date.

Example: If you have a $500 credit card bill due on the 15th, set up an auto-payment for at least the minimum amount to avoid penalties.

2. Reduce Your Credit Utilization Below 30%

Credit utilization is the percentage of your available credit that you’re using. A high utilization rate signals risk to lenders and can lower your score.

Ideal Utilization: Keep your credit usage below 30% of your total credit limit. If your credit limit is $10,000, try not to use more than $3,000 at any given time.

Quick Fix: If your balance is too high, consider making multiple payments within a month to keep the balance low when reported to credit bureaus.

3. Don’t Apply for Too Much Credit at Once

Each time you apply for a new credit card or loan, lenders conduct a hard inquiry, which can temporarily reduce your score.

Best Practice: Only apply for credit when necessary. Too many applications in a short period can make lenders see you as a risk.

Alternative: If you need a new credit card, consider pre-approved offers, which don’t impact your credit score.

4. Keep Old Credit Accounts Open

The length of your credit history matters. Older accounts help strengthen your credit score by showing long-term, responsible credit usage.

What to Do: Keep your oldest credit card accounts open, even if you don’t use them often.

Example: If you opened a credit card five years ago, closing it will shorten your average credit age, which can hurt your score.

5. Check Your Credit Report and Dispute Errors

Mistakes on your credit report can drag down your score without you even realizing it.

How to Check: Get a free credit report from Equifax or TransUnion and review it for errors like incorrect late payments or fraudulent accounts.

How to Dispute: If you find a mistake, contact the credit bureau immediately to have it corrected.

Final Thoughts: Take Control of Your Credit Today

Improving your credit score doesn’t happen overnight, but following these steps can lead to noticeable improvements within months. Whether you’re planning to buy a home or just want better financial security, a higher credit score opens doors to better loan rates and financial opportunities.

Need personalized mortgage advice based on your credit situation?

Pradip Maheshvari Mortgages can help you secure the best mortgage options, no matter your credit score.

📞 Get in touch today!

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