What's The Most Expensive Home You Could Afford? | CBC News

Canada

Use this tool to calculate the most expensive home you could buy based on your income and passing the mortgage “stress test.”

Graeme Bruce · CBC News

· Posted: Apr 10, 2024 4:00 AM EDT | Last Updated: April 10

New homes are built in a housing construction development in the west end of Ottawa in 2021. (Sean Kilpatrick/The Canadian Press)Use this tool to see the most expensive home you could afford. The numbers are based on what banks are typically willing to lend. If you’re buying with a partner, combine your income, expenses and debts.

How we got the numbers

This tool uses something known as the “stress test.” The test is designed to ensure homeowners don’t take on too much debt when signing on to a mortgage. Canada’s Office of the Superintendent of Financial Institutions decides the interest rates used in a stress test. Currently, they’re set at the interest rate the homebuyer was approved for plus two percentage points, or 5.25 per cent, whichever is higher.

Depending on the debt ratios of the homebuyer, lenders might approve or reject a mortgage request. The gross debt ratio (GDS) considers the home purchase’s monthly carrying costs (mortgage, heating, taxes, etc.) divided by the homebuyer’s monthly income. The total debt ratio (TDS) is the same plus any additional monthly debt payments the homebuyer may have (credit cards, student loans and car payments).

According to the Financial Consumer Agency of Canada, mortgage requests are likely to be rejected when the GDS is 32 per cent or more or when the TDS is 40 per cent or more. Different institutions use different thresholds.

If the user does not provide heating costs, the default amount used in the calculations is $175 per month. If the user does not provide a property tax monthly payment, the default amount is 1.5 per cent of the purchase price divided by 12. These assumptions match the ones used by the Royal Bank of Canada in their calculations.

You can find the formulas and calculations used here.

ABOUT THE AUTHOR

Graeme Bruce is a data journalist based in Ottawa. Previously, he was a digital editor at the Winnipeg Free Press. Find him on Twitter @graemebruce_ and reach him by email at graeme.bruce@cbc.ca.

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