Mortgage Affordability Calculator
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Income Requirements & Mortgage Payments
Overview of the income requirements associated with mortgage payments. Breaking down the process into key components which outline the steps used to determine the potential total income needed for property ownership.
Mortgage Types
In Canada, mortgages are primarily divided into two types: fixed-rate and adjustable-rate. A fixed-rate mortgage maintains a constant interest rate throughout the mortgage term, while an adjustable-rate mortgage allows for fluctuation in the interest rate during the term.
Monthly Mortgage Payment
Calculate the mortgage amount by subtracting the downpayment from the property value. Then determine the monthly mortgage payment using the mortgage amount, mortgage rate, and amortization period.
Total Income Requirement
Consider various rules in determining the total income required. Assume no additional debts besides the mortgage. Borrowers can borrow up to 38% of their income, subject to stress testing and additional considerations.
Rule #1: Stress Testing
Conduct a stress test to assess the borrower's ability to withstand mortgage rate fluctuations at renewal. Use the higher of 5.25% or the expected mortgage rate +2% for stress testing calculations. Calculate mortgage payments at the stress test level.
Rule #2: Accounting for Maintenance Fees
Consider maintenance fees at 50% when calculating the net monthly qualifying stress-tested payment.
Rule #3: Accounting for Property Taxes & Heating Costs
Factor in property taxes and heating costs at 100% in the net monthly qualifying stress-tested payment calculation.
Annual Income Calculation
Divide the net monthly stress-tested payment by 0.38 and multiply by 12 to determine the annual income required for mortgage eligibility.