Lenders don’t approve a mortgage based on what feels affordable to you. They run your income through two ratios at a stress-tested interest rate, and the answer is a hard ceiling. Once you know how that math works, you can estimate the income you need for any mortgage size in a few seconds.
How lenders turn income into a mortgage
Three rules decide the answer:
- The stress test. Your payment is calculated at the greater of your contract rate + 2% or 5.25% (OSFI’s minimum qualifying rate). At a 4.49% contract rate, you qualify at 6.49%.
- Gross debt service (GDS). The qualifying mortgage payment, property tax, heating and half of any condo fees must stay within 39% of your gross household income.
- Total debt service (TDS). GDS costs plus all other debt payments (car loans, credit cards, lines of credit, student loans, support payments) must stay within 44%.
The 39% and 44% limits are CMHC’s for insured mortgages. Uninsured lenders (20% or more down) may use somewhat different limits, but most work in the same range. See GDS and TDS ratios for what counts in each.
Income needed by mortgage size
Assumptions for every row: 4.49% contract rate (6.49% qualifying), 25-year amortization, monthly payments, 20% down payment (so the home price is the mortgage ÷ 0.8 and there’s no insurance premium), property tax of 0.75% of the home price a year, heating of $125 a month and no condo fees.
| Mortgage | Home price | Qualifying payment | Income needed, no debts (GDS 39%) | Income needed with $500/month debts |
|---|---|---|---|---|
| $300,000 | $375,000 | $2,008 | $72,800 | $78,200 |
| $400,000 | $500,000 | $2,677 | $95,800 | $98,600 |
| $500,000 | $625,000 | $3,346 | $118,800 | $119,000 |
| $600,000 | $750,000 | $4,015 | $141,800 | $141,800 |
| $750,000 | $937,500 | $5,019 | $176,300 | $176,300 |
| $1,000,000 | $1,250,000 | $6,692 | $233,800 | $233,800 |
Incomes are gross (before tax) household income, rounded to the nearest $100. The last column is the higher of the GDS requirement and the TDS requirement (44%) with $500 a month of other debt payments.
Two things stand out. First, a quick rule of thumb: at today’s rates you need roughly $1 of income for every $4.20 of mortgage. Second, a $500 car payment raises the income needed on a small mortgage by several thousand dollars, but on larger mortgages the 39% GDS limit is already the tighter rule, so the same debt doesn’t change the answer. With bigger debts, TDS takes over again.
Worked example
A couple earns $150,000 together ($12,500 a month). They’re looking at homes with property tax of about $5,000 a year and heating of $125 a month. They have no debts, and the best rate they’ve been quoted is 4.49% for 5 years.
- GDS room: 39% × $12,500 = $4,875 a month.
- Minus property tax ($417) and heating ($125) leaves $4,333 for the mortgage payment at 6.49%.
- That payment supports a maximum mortgage of about $647,500 over 25 years.
- Their actual payment at 4.49% would be about $3,580 a month, lower than the $4,333 they had to qualify at.
Now add a $1,000 a month car loan. TDS becomes the binding limit, and the maximum mortgage falls to about $591,500: one car payment costs them roughly $56,000 of borrowing power.
What changes the income you need
- Interest rate. A lower contract rate lowers the qualifying rate too, until it reaches the 5.25% floor.
- Amortization. A 30-year amortization lowers the qualifying payment. For the $500,000 mortgage above, it cuts the income needed from about $118,800 to about $112,100. Thirty years is available with 20% down at many lenders, and on insured mortgages for first-time buyers and new builds.
- Down payment under 20%. The mortgage insurance premium is added to your mortgage, so you need a bit more income for the same home. See the CMHC insurance calculator.
- Property tax and condo fees. Half of condo fees count in GDS. A condo with $600 monthly fees uses up $300 of your GDS room, about the same as a $45,000 larger mortgage.
- Other debts. Paying off or consolidating debts is often the fastest way to qualify for more.
Which income counts
Lenders use gross income they can verify: salary from pay stubs and an employment letter, and for self-employed borrowers usually two years of Canada Revenue Agency notices of assessment. Bonuses, commission, overtime and rental income may count partly or fully, usually only with a track record. Each lender has its own rules, so check with your lender or broker before counting on irregular income.
Co-borrowers’ incomes are added together, which is why the table shows household income.
Next steps
Run your own numbers in the affordability calculator, check that you pass with the stress test calculator, and read the stress test explained. Remember that qualifying for a mortgage is a ceiling, not a target: leave room in your budget for maintenance, savings and rate changes at renewal.
Sources: OSFI, minimum qualifying rate; CMHC, general requirements for mortgage loan insurance; FCAC, getting preapproved for a mortgage. All payments and incomes were calculated with this site’s mortgage engine.