The Minimum Monthly Income To Get A 400K – 900K Mortgage In Canada

Buying a home is an exciting journey with a touch of anxiety, especially if you’re a first-time homebuyer. In most cases, people look for a mortgage plan to help them buy their dream home in Canada, but they don’t know if their income is enough to qualify for that mortgage amount. 

But, there’s no need to worry as we’ve outlined a simple, step-by-step guide that can help you figure out the minimum monthly income needed to get a $400K – 900K mortgage in Canada.

Of course, keep in mind that the exact income may vary based on the property value, down payment percentage, additional financing structures (e.g., government programs), and some other factors. Also, for the sake of accuracy, it’s always better to use a mortgage payment calculator.

But this is a great starting point.

Mortgage Affordability: How Much Can You Afford?

Generally, mortgage lenders first look at your total monthly housing expenses, monthly debts, monthly income, and your down payment budget before deciding to approve your mortgage application. 

One of the main elements in securing a mortgage is to pass the mortgage stress test. You need to do this before calculating a mortgage loan payment for any level of income.

What is the Mortgage Stress Test and Why Does it Matter?

In the housing market of Canada, passing the Mortgage Stress Test is a mandatory step to qualify for a mortgage. The stress test is designed to ensure that you can afford your mortgage payment even if interest rates rise.

The stress test requires you to qualify for a mortgage at either 5.25% or 2% higher than your negotiated rate, whichever is greater. This simulated higher mortgage rate ensures that you would still be able to make payments in a more challenging financial environment.

A major element in passing the Stress Test is that your Gross Debt Service (GDS) Ratio does not exceed 32% and your Total Debt Service also is at 40% max.

Gross Debt Service (GDS) Ratio

• GDS measures the percentage of your gross income that goes towards housing costs, including your mortgage payment, property taxes, heating costs, and half of any condo fees.
• Requirement: Your GDS ratio should be below 32%. This means that no more than 32% of your gross monthly income should go towards housing costs.

Total Debt Service (TDS) Ratio

• TDS considers not only your housing costs but also all your other debt payments, including credit card payments, car loans, and any other loans or obligations.
• Requirement: Your TDS ratio should be below 40%. This means that no more than 40% of your gross monthly income should go towards housing costs plus other debt payments.

What’s the formula to find the minimum monthly income that passes this test? 

First, we consider GDS at 32% and TDS at 40%. Then:

1. Gross Debt Service (GDS) Ratio Calculation

To calculate the minimum monthly income that meets the GDS requirement:

Minimum Gross Monthly Income=Total Monthly Housing Costs / 0.32

2. Total Debt Service (TDS) Ratio Calculation

To calculate the minimum monthly income that meets the TDS requirement:

Minimum Gross Monthly Income =(Total Monthly Housing Costs + Total Monthly Debt) / 0.40

3. Choose the Higher Income

Compare the two values you calculated. The higher of the two is your minimum gross monthly income required to pass both the GDS and TDS ratios.

Let’s use the 400K mortgage as an example. Also, from here on, by income, we mean gross income.

The Income Needed for a 400K Mortgage in Canada

For all the mortgage amounts and examples, we’ll be using:

• A 20% downpayment and consider the mortgage rate at 5.25% over a 25-year amortization period. Why 20%? Because you can’t get a $900K mortgage with anything less than 20% as downpayment. So, for the sake of uniformity, it’s better to use this percentage.
• A $1000 monthly debt for the TDS metric.
• The Toronto housing market property tax rate of 0.72% as an example

So, keep in mind that the exact number may be different based on your downpayment, property tax amount, property value, monthly housing expenses, and debt levels.

To make sure that you accurately calculate mortgage loan payments for each mortgage level, you need to use a mortgage calculator.

For a $400K mortgage, the standard monthly mortgage payment with a 20% downpayment is around $2,234. In that case, your property value would be $500,000.

Step 1: Estimate Monthly Housing Costs

Let’s break down the monthly housing costs for a property valued at $500,000:

Step 2: Calculate Minimum Income for GDS

Now, we calculate the minimum gross monthly income required to meet the GDS ratio of 32%.

Monthly Gross Income = $2994 / 0.32 = $9,356

Step 3: Estimate Monthly Debt Payments

Let’s assume other debt payments (e.g., credit cards, car loans) total $1,000/month.

Total Monthly Debt Payments (including housing):

$2,994 + $1,000= $3,994

Step 4: Calculate Minimum Income for TDS

Now, calculate the minimum gross monthly income required to meet the TDS ratio of 40%.

Monthly Gross Income = $3994 / 0.40 = $9,985

Step 5: Determine the Higher Income Requirement

• GDS Requirement: $9,356/month
• TDS Requirement: $9,985/month

To qualify for a $400,000 mortgage in Canada under the given conditions, your minimum gross monthly income should be $9,985. This ensures you meet both the GDS and TDS criteria.

The Income Needed for a $500K Mortgage in Canada

If you want to secure a $500K mortgage with a 20% downpayment, your property value would be $625K. The standard monthly mortgage payment with a 20% downpayment is around $2,980. 

Step 1: Estimate Monthly Housing Costs

Let’s break down the monthly housing costs for a property valued at $625,000:

Step 2: Calculate Minimum Income for GDS

Now, we calculate the minimum gross monthly income required to meet the GDS ratio of 32%.

Monthly Gross Income = $3830 / 0.32 = $11,968

Step 3: Estimate Monthly Debt Payments

Let’s assume other debt payments (e.g., credit cards, car loans) total $1,000/month.

Total Monthly Debt Payments (including housing):

$3,830 + $1,000= $4,830

Step 4: Calculate Minimum Income for TDS

Now, calculate the minimum gross monthly income required to meet the TDS ratio of 40%.

Monthly Gross Income = $4830 / 0.40 = $12,075

Step 5: Determine the Higher Income Requirement

• GDS Requirement: $11,968/month
• TDS Requirement: $12,075/month

To qualify for a $500,000 mortgage in Canada under the given conditions, your minimum gross monthly income should be $12,075. This ensures you meet both the GDS and TDS criteria.

The Income Needed for a $600K Mortgage in Canada

If you want to secure a $500K mortgage with a 20% downpayment, your property value would be $750K. The standard monthly mortgage payment with a 20% downpayment is around $3,576. 

Step 1: Estimate Monthly Housing Costs

Let’s break down the monthly housing costs for a property valued at $750,000:

Step 2: Calculate Minimum Income for GDS

Now, we calculate the minimum gross monthly income required to meet the GDS ratio of 32%.

Monthly Gross Income = $4516 / 0.32 = $14,112

Step 3: Estimate Monthly Debt Payments

Let’s assume other debt payments (e.g., credit cards, car loans) total $1,000/month.

Total Monthly Debt Payments (including housing):

$4516 + $1,000= $5,516

Step 4: Calculate Minimum Income for TDS

Now, calculate the minimum gross monthly income required to meet the TDS ratio of 40%.

Monthly Gross Income = $5516 / 0.40 = $13,790

Step 5: Determine the Higher Income Requirement

• GDS Requirement: $14,112/month
• TDS Requirement: $13,790/month

To qualify for a $500,000 mortgage in Canada under the given conditions, your minimum gross monthly income should be $14,112. This ensures you meet both the GDS and TDS criteria.

The Income Needed for a $700K Mortgage in Canada

If you want to secure a $700K mortgage with a 20% downpayment, your property value would be $875K. The standard monthly mortgage payment with a 20% downpayment is around $4,171. 

Step 1: Estimate Monthly Housing Costs

Let’s break down the monthly housing costs for a property valued at $875,000:

Step 2: Calculate Minimum Income for GDS

Now, we calculate the minimum gross monthly income required to meet the GDS ratio of 32%.

Monthly Gross Income = $5201 / 0.32 = $16,235

Step 3: Estimate Monthly Debt Payments

Let’s assume other debt payments (e.g., credit cards, car loans) total $1,000/month.

Total Monthly Debt Payments (including housing):

$5,201 + $1,000= $6,201

Step 4: Calculate Minimum Income for TDS

Now, calculate the minimum gross monthly income required to meet the TDS ratio of 40%.

Monthly Gross Income = $6201 / 0.40 = $15,502

Step 5: Determine the Higher Income Requirement

• GDS Requirement: $16,235/month
• TDS Requirement: $15,502/month

To qualify for a $700,000 mortgage in Canada under the given conditions, your minimum gross monthly income should be $15,502. This ensures you meet both the GDS and TDS criteria.

The Income Needed for a $800K Mortgage in Canada

If you want to secure a $800 mortgage with a 20% downpayment, your property value would be $1,000,000. The standard monthly mortgage payment with a 20% downpayment is around $4,767. 

Step 1: Estimate Monthly Housing Costs

Let’s break down the monthly housing costs for a property valued at $625,000:

Step 2: Calculate Minimum Income for GDS

Now, we calculate the minimum gross monthly income required to meet the GDS ratio of 32%.

Monthly Gross Income = $5887 / 0.32 = $18,396

Step 3: Estimate Monthly Debt Payments

Let’s assume other debt payments (e.g., credit cards, car loans) total $1,000/month.

Total Monthly Debt Payments (including housing):

$5,887 + $1,000= $6,887

Step 4: Calculate Minimum Income for TDS

Now, calculate the minimum gross monthly income required to meet the TDS ratio of 40%.

Monthly Gross Income = $6887 / 0.40 = $17,217

Step 5: Determine the Higher Income Requirement

• GDS Requirement: $18,396/month
• TDS Requirement: $17,217/month

To qualify for a $800,000 mortgage in Canada under the given conditions, your minimum gross monthly income should be $18,396. This ensures you meet both the GDS and TDS criteria.

The Income Needed for a $900K Mortgage in Canada

If you want to secure a $900K mortgage with a 20% downpayment, your property value would be $1,125,000. The standard monthly mortgage payment with a 20% downpayment is around $5,363. 

Step 1: Estimate Monthly Housing Costs

Let’s break down the monthly housing costs for a property valued at $625,000:

Step 2: Calculate Minimum Income for GDS

Now, we calculate the minimum gross monthly income required to meet the GDS ratio of 32%.

Monthly Gross Income = $6573 / 0.32 = $20,540

Step 3: Estimate Monthly Debt Payments

Let’s assume other debt payments (e.g., credit cards, car loans) total $1,000/month.

Total Monthly Debt Payments (including housing):

$6,573 + $1,000= $7,573

Step 4: Calculate Minimum Income for TDS

Now, calculate the minimum gross monthly income required to meet the TDS ratio of 40%.

Monthly Gross Income = $7573 / 0.40 = $18,932

Step 5: Determine the Higher Income Requirement

• GDS Requirement: $20,540/month
• TDS Requirement: $18,932/month

To qualify for a $500,000 mortgage in Canada under the given conditions, your minimum gross monthly income should be $20,540. This ensures you meet both the GDS and TDS criteria.

The Income Needed For a $400K – 900K Mortgage in Canada

Breakdown:

1. Monthly Mortgage Payment: Calculated using a mortgage calculator. For each mortgage amount, there’s a 5.25% interest rate and a 25-year amortization period.
2. Minimum Property Value: Considering the mortgage amount and the 20% downpayment.
3. Minimum Gross Monthly Income: The higher of the two values to ensure compliance with both GDS and TDS criteria.

Bottom Line

Navigating the Canadian mortgage landscape can seem overwhelming, especially with stringent requirements like the Mortgage Stress Test. However, understanding the basics—such as the importance of GDS and TDS ratios—can empower you to make informed decisions and ensure that you’re financially prepared to purchase your dream home.Whether you’re looking to buy a condo in the heart of Toronto or elsewhere in Canada, our team at PlatinumCondoDeals is here to guide you every step of the way. We specialize in helping first-time buyers and seasoned investors find the best properties and mortgage deals that fit their unique needs. Just reach out and let’s get the best condo in Canada for your money.