Determining Your Mortgage
The GDS or Gross Debt Service ratio is used to determine the maximum loan amount for which you qualify. You may, however, feel more comfortable borrowing a lower amount, given lifestyle considerations. The loan payment usually is not more than 32% to 35% of your gross (before tax) monthly income. This percentage can vary depending on the financial institution you choose. It covers mortgage principal, interest, property taxes, plus, if applicable, secondary financing & condo fees.
Only verifiable income sources are taken into account. A combined or “family” income figure is used for two income households.
The TDS or Total Debt Service ratio takes into account other debt, such as car payments, personal loans or credit card balances. Generally no more than 40% of your gross (before tax) income can be allocated to your housing costs and other monthly expenses combined. However, this percentage is also variable depending on the financial institution used.
Have a mortgage specialist pre-approve you for a mortgage, so you will know exactly how much you can afford before you start looking at homes. When you are pre-approved for a mortgage, your interest rate is usually guaranteed for 60 to 120 days.
If your down payment is less than 25% of your purchase price, you require high-ratio financing. This means that Canada Mortgage and Housing Corporation (CMHC) must guarantee the re-payment of your mortgage (by way of providing mortgage insurance) to the financial institution should you be unable to repay the loan.