Disclaimer

The calculator provided on this website is intended solely as an estimator and does not reflect an actual mortgage amount or affordability amount. The results generated are for informational purposes only and should not be considered as a precise calculation of what you can afford or the exact terms of a mortgage you may qualify for. For an accurate assessment of your mortgage amount and affordability, we strongly recommend contacting a mortgage professional. They will be able to provide a detailed evaluation based on a complete mortgage application and your specific financial situation.

Affordability Help: Understanding Key Terms

Buying a home is one of the most significant financial decisions you’ll make, and understanding affordability is crucial to ensure you can manage your mortgage comfortably. Here’s a guide to help you understand the key terms related to home affordability:

1. Debt-to-Income Ratio (DTI)
The debt-to-income ratio is a measure of your monthly debt payments compared to your gross monthly income. Lenders use this ratio to assess your ability to manage monthly payments and repay debts. A lower DTI indicates better affordability and borrowing capacity.

2. Gross Debt Service Ratio (GDS)
The gross debt service ratio is the percentage of your gross monthly income that goes towards housing costs, including mortgage payments, property taxes, and heating costs. A GDS of 32% or lower is generally considered affordable by lenders.

3. Total Debt Service Ratio (TDS)
The total debt service ratio includes all your debt obligations, such as credit card payments, car loans, and housing costs. A TDS of 40% or lower is typically required to qualify for a mortgage, indicating you can afford the property alongside other debts.

4. Down Payment
The down payment is the initial amount you pay towards the purchase price of a home. In Canada, a minimum down payment of 5% is required for homes up to $500,000, with higher percentages needed for more expensive properties. A larger down payment can reduce your monthly mortgage payments and interest costs.

5. Mortgage Insurance
Mortgage insurance protects the lender in case you default on your loan. In Canada, if your down payment is less than 20%, you are required to purchase mortgage default insurance, commonly known as CMHC insurance. This cost is added to your mortgage but can help you secure a loan with a smaller down payment.

6. Interest Rate
The interest rate on your mortgage significantly impacts your affordability. A lower interest rate means lower monthly payments and less interest paid over the life of the loan. It's essential to shop around and compare rates to find the best deal.

7. Amortization Period
The amortization period is the total length of time it will take to pay off your mortgage in full. Common periods are 25 to 30 years. A longer amortisation period can lower your monthly payments but increase the total interest paid.

8. Property Taxes
Property taxes are levied by the municipality and are based on the assessed value of your home. These taxes must be considered in your budget as they are a recurring annual expense.

9. Utilities
Utilities include essential services such as water, electricity, heating, and waste management. These costs can vary based on the size and location of the home and must be factored into your overall affordability calculations.

10. Maintenance and Repairs
Owning a home comes with ongoing maintenance and repair costs. Setting aside a budget for unexpected repairs and regular maintenance ensures your home remains in good condition and prevents financial strain.

11. Condo Fees
If you purchase a condominium or a townhome within a community with shared amenities, you may be required to pay condo fees. These fees cover the maintenance of common areas, facilities, and services, adding to your monthly housing expenses.

12. Closing Costs
Closing costs are the fees and expenses you need to pay when finalising the purchase of a home. These can include legal fees, title insurance, inspection fees, and more. Typically, closing costs range from 1.5% to 4% of the purchase price and should be included in your budget.

Understanding these terms can help you assess your financial readiness to purchase a home and ensure you can comfortably manage your mortgage payments.