Mortgage Affordability & Its Key Factors in Canada

Mortgage Affordability & Its Key Factors in Canada

Are you on the lookout to find a home? Canadians love buying and switching homes and have a deep love for mortgages too. With the rising mortgage rates and the changing mortgage pricing, the big question that often arises is how much can you afford to borrow or are eligible to mortgage.

Here’s a brief overview of key factors that impact mortgage affordability in Canada as explained by a Surrey mortgage broker:

  • Gross Debt Service (GDS) & Total Debt Service (TDS) Ratio

Followed by leading mortgage default insurers like CMHC, Genworth, and Sagen, the GDS that includes your housing costs, including the mortgage principal, interest rate, property taxes, and heating costs should not exceed 30%. Similarly, the TDS that includes car loans, credit card payments, and other debts must not exceed 44%. 

A minimum credit score of 680 is needed to meet the GDS and TDS requirements. Even a slightly low credit score of 600 – 680 may work.

  • Rising Interest Rates

Your monthly mortgage payments may be considerably impacted by even a slight increase in interest rates. When planning to apply for a mortgage, it’s critical to understand how any recent developments in the interest rates and any prospective future changes can impact your scope of qualifying. Before applying for a new mortgage, adding the stress test could mean the difference between getting approved or not.

  • Housing Location

The cost of housing varies greatly throughout Canada, thanks to some highly developed cities. Compared to smaller cities and sub-urban places, buying a home in hot markets like Toronto & Vancouver may mean spending fortunes. A standard proverb that’s still influencing Canadians to make mortgage leaps is “Drive till you qualify.” Given the ability to work remotely, many Canadians are now following the mortgage plan that meets their budget needs rather than accessibility.

  • Down Payment Criteria

Your monthly payments and the amount you need to borrow are directly impacted by the size of your down payment. A larger down payment decreases the total amount of your loan and your monthly mortgage payment. The required minimum down payment is 5% for homes under $500,000.

You’ll require mortgage default insurance, which will incur additional costs, for down payments of less than 20%. In addition to borrowing more money when you make a down payment of more than 20%, you can also extend the amortization period to 30 years and look for other options from lenders who can provide more affordable payments.

So, these were some factors that may impact your mortgage affordability in Canada. Make sure you increase your mortgage affordability by:

  • Boosting Your Income
  • Reducing The Debt
  • Saving On Insurers
  • Shop Around for Rates

Bottom Line

Affordability is important, but keep other things in mind too. Consider upcoming costs such as property taxes and upkeep. Evaluate your lifestyle realistically to find out how much space you actually need.

If you are looking for a professional mortgage broker in Surrey, BC to help you out, talk to our mortgage experts at Satbir Bhullar. We can help evaluate your financial status, suggest appropriate mortgage products, and take you through the pre-approval procedure. It’s better to choose a home that comfortably fits inside your budget and meets your housing expectations at the same time.

For more information on mortgages, schedule a detailed consultation with our experts.