The first question home buyers want to ask when they want a mortgage: “how much can I afford”, but the real first steps in buying a house are ensuring you can afford to pay at least 5% of the purchase price of the home as a down payment and determining your budget. This Mortgage Calculator steps you through the process of finding out how much you can borrow.
The calculators don’t take into account everything, unfortunately. Here are some definitions and some additional costs to consider
MORTGAGE: How Much Can I Afford?
- Annual income – Your gross annual income. For married couples this is your total combined gross annual income. Please note that if you enter a purchase price or total monthly payment the calculator will determine the gross annual income required to qualify for the purchase. This calculated amount may be higher or lower than your actual income.
- Purchase price – The price of the home you wish to purchase. This is the actual price you pay, not including any closing costs. If you enter an annual income or a total monthly payment, the purchase price will be calculated based on these amounts.
- Total monthly payment – Total monthly payment that you can qualify for. This is the total of principal, interest, taxes and heat paid each month. If you enter a purchase price or annual income, the total monthly payment will be calculated based on these amounts.
- Interest rate – The current interest rate you can receive on your mortgage.
- Amortization in years – The number of years over which you will repay this mortgage.
- Mortgage amount – Total amount for this mortgage (Purchase price minus down payment plus mortgage default, ie. CMHC, insurance, if applicable).
- Monthly payment (PI) – Monthly principal and interest payment for the mortgage. This payment amount does not include maintenance or property taxes. This calculator assumes both GST and mortgage insurance are financed which increases your mortgage amount, which is then reflected in your monthly principal and interest payment.
- Monthly heat – Total monthly payment for your home’s heating bill. CMHC and Genworth currently only require heat costs to be incorporated into the monthly costs, however, there are other monthly costs associated with properly running a house such as hydro, water, telephone, cable, etc. You may wish to add these costs into the “Heat” category in order to properly calculate your monthly payment.
- Annual property taxes – The annual property tax paid on the home you are purchasing.
- Condo Fees – Monthly fee charged for your condominium that you expect to incur with the ownership of this home. Please note that condominiums are referred to as ‘strata’ in the Province of British Columbia. We add 50% of your condominium fee to your Gross Debt Service (GDS) when calculating the maximum mortgage that you can qualify for.
- Cash on hand – Cash you have for the down payment and all closing costs. You can purchase a home with as little as 5% down payment with mortgage loan insurance. An ideal down payment is between 10 – 20% of the purchase price of the home. You may be eligible to use money from your RRSP to help fund your home purchase.
- Other closing costs – Estimate of all other closing costs for this loan. This should include filing
fees, appraiser fees and any other miscellaneous fees payable. - Is this a new home? – Many new homes have the purchase price with GST and/or HST/PST included. If this is the case for your home purchase, the checkbox to include GST should be left unchecked since the GST and/or HST/PST will be included in the purchase price. This calculator calculates GST at 5% of a new home’s purchase price minus a GST rebate. GST rebates are calculated as follows. For homes under $350,000, the rebate amounts to 36% of GST, up to a maximum rebate of $6,300. For homes between $350,000 and $450,000, the maximum rebate of $6,300 declines to zero on a proportional basis. All homes selling for more than $450,000 receive no GST rebate. It is important to be aware that there may be additional taxes on new home purchases in the form of HST and/or PST, depending on the province where the purchase is made. These additional taxes are not included in this analysis. For more information, please visit: http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-e.html#P103_1775
- Total closing costs – This is the total you will need to pay in fees and taxes when you close, or purchase, your home. This includes GST/HST on the home’s purchase if you indicated this was a new home. It also includes the mortgage fees and other closing costs you entered. Mortgage insurance is not included in this total, it is assumed to be financed in your new mortgage. There may be additional fees and taxes due at closing, please consult your mortgage professional for more information.
- Mortgage Default Insurance Required? – Check this box if you wish to calculate the amount of mortgage insurance payable. Mortgage insurance is financed in your mortgage and does not increase your closing costs, but does increase your mortgage balance. For additional information regarding mortgage insurance please read the definition “Mortgage Loan Insurance Premium”.
- Mortgage Loan Insurance Premium (non-refundable) – Mortgage insurance is financed in your mortgage and does not increase your closing costs, but does increase your mortgage balance. Mortgage insurance makes it possible for home buyers to purchase a home using a lower down payment. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment. The Canadian Mortgage and Housing Corporation (CMHC) and Genworth Financial are two companies that offer Mortgage Loan insurance. For more information please visit their websites at www.chmc.ca and www.genworth.ca.
| CMHC and Genworth Financial’s current Mortgage Loan insurance Premium Rates*: | |
| Loan Size (% of property value) | Rate (as a % of loan) |
|---|---|
| Up to and including 65% (over 35% down payment) | 0.6% |
| Up to and including 75% (25% to 34.99% down payment) | 0.75% |
| Up to and including 80% (20% to 24.99% down payment) | 1.25% |
| Up to and including 85% (15% to 19.99% down payment) | 1.80% |
| Up to and including 90% (10% to 14.99% down payment) | 2.40% |
| Up to and including 95% (5% to 9.99% down payment) | 3.60% |
| Up to and including 95% Flex Down or Cash Back Equity Owner-Occupancy Program** (5% to 9.99% down payment) | 3.85% |
*An additional 0.25% is added for every 5 years of amortization beyond a 25 year mortgage amortization period.
This calculator assumes that your mortgage insurance premium can be financed by your mortgage, which can greatly reduce the amount of upfront money that is required to purchase a home.
This calculator does not include Genworth’s Top-up Premiums or Blended Amortization for refinancing.
**Not all Financial Institutions offer CMHC’s Flex Down and/or Genworth Financial’s Cashback Equity Owner-Occupancy Program.
Below is a brief summary of the two programs:
CMHC’s Flex Down
Own your own home sooner by using a wider range of sources for your down payment. If you have a proven track record of meeting your debt requirements and sufficient income to support mortgage loan payments, your lender may be able to provide you with CMHC’s Flex Down product. Sources for your down payment can include: borrowed funds, gifts and lender cash back incentives. For more information please see: http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm
Genworth Financial’s Cashback Equity Owner-Occupancy Program
Some home buyers have an excellent credit history but have not yet saved the required down payment. Others have used their savings to build assets in different ways. Genworth Financial offers mortgage default insurance to both these groups. For more information please see:http://genworth.ca/en/lenders/premium-rate-table.aspx
- GDSR (Gross Debt Service Ratio) and TDSR (Total Debt Service Ratio) – The most important amounts to consider are your gross household income, your down payment and the mortgage interest rate. Lenders will also consider your assets and liabilities. Your own lifestyle and debt comfort zone also come into play. To help you see how much you can afford, there are two simple rules that lenders use to determine how much of a mortgage you qualify for. These rules are governed by Canada Mortgage and Housing Corporation (CMHC) which is Canada’s national housing agency and Canada’s premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.The first rule is that your monthly housing costs should not exceed 35% of your gross monthly household income (GDSR). Housing costs include monthly mortgage payments, taxes and heating expenses. If applicable, this sum should also include half of monthly condominium fees.
Secondly, your entire monthly debt load should not be any more than 42% of your gross monthly income (TDSR). This includes housing costs, and other debts such as car payments, personal loans, and credit card payments.
debt comfort zone also come into play. To help you see how much you can afford, there are two simple rules that lenders use to determine how much of a mortgage you qualify for. These rules are governed by Canada Mortgage and Housing Corporation (CMHC) which is Canada’s national housing agency and Canada’s premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.The first rule is that your monthly housing costs should not exceed 35% of your gross monthly household income (GDSR). Housing costs include monthly mortgage payments, taxes and heating expenses. If applicable, this sum should also include half of monthly condominium fees.So as you can see, it’s not as simple as I want a mortgage, how much can I afford. There’s a lot more to it than that.
To find out the real answer, give me a call and we can sit down an review your situation so you will know exactly what you can afford before you start shopping.
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