Mortgage Affordability Calculator

A mortgage affordability calculator is a tool that helps people accurately determine how much mortgage they can afford.

With the ever-increasing costs of homes in Canada, potential homeowners have no choice but to consider a mortgage affordability calculator. This tool makes it easier for the average Canadian to plan effectively for their dream home.

A mortgage affordability calculator is a tool that helps people accurately determine how much mortgage they can afford. These tools consider many factors like GDS and TDS ratios, monthly incomes, monthly expenses, etc. Your mortgage affordability isn’t stagnant. You can increase it by going for cheaper homes, reducing your monthly expenses, etc.

This article can teach you all you need to know about these useful calculators.

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What Is Mortgage Affordability?

Mortgage affordability is the maximum mortgage that an individual can afford to borrow. This value is based on past debt payments, living costs, the borrower’s gross income, and other factors. Sometimes, the homeowner’s monthly expenses and credit card payments are also considered.

Nonetheless, the higher the mortgage affordability of an individual, the more mortgage loans they can afford to borrow. This also means that with high mortgage affordability, you can also afford to purchase a more expensive home.

How Is Mortgage Affordability Determined?

You can determine mortgage affordability by weighing your income and down payments against your debt obligations and current housing costs. These calculations can be summarised under the gross debt service ratio and the total debt service ratio.

Gross Debt Service (GDS) Ratio

The GDS ratio determines the percentage of your gross annual income you’ll need to own a home. This calculation covers your property taxes, annual mortgage payments, heating, and condo fees.

Total Debt Service (TDS) Ratio

The TDS ratio determines the percentage of your gross annual income you’ll need to own a home alongside other debts. This calculation covers the GDS calculations and also includes payments such as loans and credit card debts.

Taking these ratios into account, you can afford a mortgage when:

  • Your GDS ratio isn’t higher than 32% of your gross annual income
  • Your TDS ratio isn’t higher than 40% of your gross annual income

However, calculating your mortgage affordability using the above method can be tedious and sometimes inaccurate. That’s why most people opt to use a mortgage affordability calculator.

What Is a Mortgage Affordability Calculator?

A mortgage affordability calculator is a tool that can provide an effective analysis of your current finances. It considers your debts, gross income, living expenses, and other necessary parameters to determine your mortgage affordability.

This calculator assumes that you’ve already passed the mortgage stress test and determines the highest mortgage loan you’re eligible for. The default GDS and TDS ratio for most calculators is usually 39% and 44%, respectively.

This is due to the Canada Mortgage and Housing Corporation (CMHC) directive. Its rules dictate that acceptable GDS and TDS ratios cannot exceed 39% and 44%, respectively.

Why Should I Use a Mortgage Affordability Calculator?

Using the calculators outlined above is essential to determining your loan worthiness accurately. Some of the reasons you should consider these calculators are:

  • These mortgage qualifiers are more accurate at determining the mortgage loans that you qualify for.
  • Since these calculators take down payments and mortgage amounts into account, you’ll be able to calculate your maximum mortgage loan.
  • These mortgage qualifiers allow you to adjust to various loan requirements to see how they affect you. This will help you to be better informed about your current financial situation.

How Do I Use the Mortgage Affordability Calculator?

Using these calculators is easy and doesn’t require much from the average Canadian. You can follow the steps below to use one of these mortgage qualifiers:

  • Find a mortgage qualifier platform.
  • Gather essential information such as your income, monthly expenses (groceries, medical, transportation, heating costs, etc.), monthly debt payments, and the like.
  • Open the mortgage qualifier website and input all the required parameters.
  • Click on the ‘calculate’ button to get your maximum loan.
  • If possible, you can also include your province and down payment for more accurate results.

How Do I Increase My Mortgage Affordability?

If the results from your calculator look unappealing, you can use the guide below to increase your mortgage affordability:

  • Increase your household income. This is important when your GDS ratio is holding you back.
  • Pay off or reduce your debts. This works well when your TDS ratio limits your loan.
  • Include a co-signer in your application so that you can use their income.
  • Reduce your monthly spending.
  • Ensure that your credit score is up to 680.
  • Go for a cheaper home.
  • Consider a longer amortization.

Mortgage Affordability Calculator Conclusion

A mortgage affordability calculator is necessary for every Canadian who wants a good mortgage loan. Although the mortgage qualifier calculator is a good idea for estimating your mortgage, it can never beat the calculations of professionals. So, after using these calculators, you’ll still need the assistance of brokers like Spring Mortgage to qualify for good mortgage loans.

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FAQs about our Mortgage Affordability Calculator

What Happens When My TDS Ratio Is Higher than 40%?

A TDS ratio that's higher than 40% means that you'll find it challenging to qualify for a mortgage loan. In such cases, you can only reduce your go for a more significant down payment, a cheaper home, or reduced monthly expenses. You can also increase your monthly income by including a co-signor.

How Much Can I Afford to Spend on My Home?

How much you can afford to spend on your home depends on the amount your lender can borrow. To estimate this, you'll need the assistance of the mortgage qualifier calculator discussed above. Of course, if you can purchase your home without a loan, that works too.

Are Mortgage Qualifier Calculators Accurate?

Yes, these calculators are very accurate in determining the mortgage loan that you can safely acquire. However, the accuracy of these calculators depends on the accuracy of the information you feed them. So, if you provide your calculator with impractical details, the results will stray from what you should be getting.

Can I Get a Mortgage Loan When I Am Self-Employed?

Yes, you can get a mortgage loan even when you're self-employed; the process will be stricter. Most lenders don’t see self-employment as a stable source of income, so they might want to see your income history. However, other lenders cater to the needs of self-employed individuals, so you can consider them.

How Can I Make Buying My Home Less Stressful?

Buying a home is less stressful when you seek the services of professionals like real estate agents and mortgage brokers. Professional mortgage brokers like Source Capital know the rules of the game and can make your application more successful. This company can also negotiate the mortgage terms, offering you the best terms within your budget.