Mortgage Math Revised

A few years ago I wrote a post about how you can calculate out your own debt service and figure out on your own how much house you can afford. A lot has changed since I published that in 2015, so today I wanted to update a few key components to that prior post.

Insurer’s ( CMHC, Sagen & Canada Guranty) have revised the debt service requirements ( GDS/TDS). See the prior post for the definitions. What was once the limit at 32/40 has now changed to 35/42 and up as high as 39/44. Note that these new limits are based on your credit score. If your beacon score is between 650-680 you can now qualify for 45/42 and those over 680 beacon scores can now qualify for 39/44.

Also one must not forget the fantastic qualifying rate of 5.25% that all mortgages must qualify for even though the current rates are much much less.

So here is a quick example. Say that your engineering job pays you 70K per year and you have 750 beacon score. Let’s assume for now that there are no other outside debt to make the example easy. 70,000/12=5,833.33 X .39 = 2,275. This is now your maximum mortgage payment for GDS before household expenses.

Now for TDS the process is the same but with a different ratio. 70,000/12 = 5,833.33 X.44 = 2,566.66. This is now your maximum payment for TDS before household expenses and debt payments.

To figure out what your maximum mortgage you can afford, you take the lesser of the two ratio’s which in this case is 2,275 and divide that by the the qualifying rate of 5.25 and multiple that by 1000. So 2,275/5.25 = 433.33 X 1000 = 433,333.33. This is your maximum mortgage amount.

“Pure mathematics is, in its way, the poetry of logical ideas.” Albert Einstein

Today I am thankful for the beautiful fall colours, the crispiness in the air and the feeling of euphoria after a great run.

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).

p.s.s.s You can download my new mortgage app here