Ontario Mortgage Calculator What Can I Afford

How to Calculate What You Can Afford

Determining your mortgage affordability involves several key factors. The most common method is the "28/36 rule" which states that your housing expenses (including property taxes and insurance) should not exceed 28% of your gross monthly income, and your total debt payments (including the mortgage) should not exceed 36% of your gross monthly income.

Key Steps to Calculate Your Affordability

1. Calculate your gross monthly income
2. Estimate your monthly expenses (including existing debts)
3. Determine how much you can afford for housing expenses (28% of income)
4. Calculate your total debt-to-income ratio (36% of income)
5. Factor in down payment requirements
6. Consider property taxes and insurance costs

The Formula

The basic formula for calculating your mortgage affordability is:

Where:

• Gross Monthly Income = Your total monthly income before taxes
• Other Monthly Debt Payments = All your existing monthly debt obligations (car loans, credit cards, etc.)

This calculation gives you the maximum amount you should spend on your mortgage payment each month. You can then use this amount to determine the maximum home price you can afford.

Worked Example

Let's look at an example to see how this works in practice.

Example Scenario

• Annual gross income: $75,000
• Monthly gross income: $75,000 ÷ 12 = $6,250
• Other monthly debt payments: $1,200 (car loan, credit cards)

Calculation

This means you can afford a monthly mortgage payment of $537.50. Using a typical 5% down payment and 25-year amortization, this would allow you to purchase a home priced around $300,000 (assuming a 5-year fixed rate of 5%).

Other Factors to Consider

While the 28/36 rule provides a good starting point, there are several other factors to consider when determining your mortgage affordability:

Down Payment Requirements

In Ontario, the minimum down payment is typically 5% of the home price. Some lenders may require a larger down payment, especially for higher-risk borrowers.

Property Taxes and Insurance

Property taxes and home insurance costs can vary significantly depending on the location and value of the home. These costs should be factored into your overall budget.

Private Mortgage Insurance (PMI)

If you make a down payment of less than 20%, you may need to pay for private mortgage insurance (PMI). This adds to your monthly costs and should be considered when calculating your affordability.

Credit Score

Your credit score plays a significant role in determining your mortgage approval and interest rate. A higher credit score can help you qualify for better terms.

Market Conditions

Interest rates and property values can fluctuate based on market conditions. Keeping an eye on these factors can help you make more informed decisions.