Mortgage Qualifying in Canada




Here's how mortgage qualifying in Canada works (regulated by OSFI - Office of the Superintendent of Financial Institutions)...


One can only qualify to spend up to 39% of their total household, gross income toward basic home expenses which include mortgage payments, property taxes and heating costs. It's important to know that exact calculations are only used for property taxes in this equation. An estimate of usually no less than $100/mth is used for heating costs and when it comes to mortgage payments, the BoC's 5 year benchmark rate of 4.64% is used instead of the actual rate which could be half that.

So what all this math boils down to is that what one can actually qualify to spend about 30% of their gross income on mortgage payments but wait... That's assuming your credit is top notch. If you have more of an average credit score, you could be limited by another 5% less. AND this is all only if all your other debt payments (credit cards, car loans, lines of credit, etc) total 5% or less of your gross income. The higher your other debts, the less you can spend on a house. And actual payments aren't always used for other debts either. On revolving credit like credit cards and lines of credit, a minimum of 3% of the balance is used rather than the actual payment. Add a car loan or a student loan in their and the mortgage you can qualify for dramatically decreases.

There is also a long list of underwriting rules that limits what can be used for income and what can't be. You may work 40 hours/week but, if your hours aren't guaranteed and you haven't held that job for at least 2 years, there's a chance your income might not factor into the equation at all! Most other types of income like child tax benefits or child/spousal support or dividend income as examples, are typically not considered at all. Rental property income can be used to help qualify for a new mortgage however, in most cases only 50% can be used though some lenders will use a higher amount in calculating an applicant's total income (100% of the expenses are factored of course).

My point is... borrowers are already 'stress tested' and limited in how much they can borrower already so if you think the recent rule changes in mortgage lending aren't that big of a deal, take a second thought about it because, there's more changes coming too.

For more info, visit www.ianleverington.ca or contact me directly.



Ian Leverington 

Mortgage Associate
Verico Crown Mortgage Services

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