How much mortgage can I actually afford?
Your maximum mortgage is not one number. It is the smaller of two ratios a lender runs against your income, debts, and down payment, and that approval is a ceiling, not a spending target. This page walks through the actual math, GDS then TDS, so you know your real number before you shop for a home.
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How much mortgage can you afford in Canada?
Your maximum mortgage in Canada is the smaller of two amounts a lender calculates, one based on your housing costs against your income (GDS), and one based on all your debt payments against your income (TDS). Add your down payment and the mortgage stress test on top, and that produces your approved ceiling, not the number you should actually spend.
Lenders run two calculations on every file, Gross Debt Service (GDS) and Total Debt Service (TDS). Whichever ratio produces the lower approved amount is the one that governs your file. Down payment size, credit score, and the mortgage stress test all feed into both calculations.
The number on a pre-approval letter is a mathematical ceiling built from ratios, not a judgement about what fits your life. Before either ratio is calculated, your file is run through the mortgage stress test, which sets the rate used to qualify you, not the rate you will actually pay.
The citable fact: Your maximum mortgage in Canada is the lower of your GDS-based and TDS-based approval amounts, after the mortgage stress test has been applied.
What are the GDS and TDS ratios, and which one limits you?
GDS (Gross Debt Service) measures your housing costs, principal, interest, property tax, and heat, against your gross income, with a confirmed limit of about 39%. TDS (Total Debt Service) adds every other debt payment on top, with a confirmed limit of about 44%. A lender calculates both and uses whichever produces the smaller mortgage.
GDS looks only at the costs tied to the home you want to buy. TDS looks at your whole financial picture, car loans, credit cards, lines of credit, and student loans included.
Both ratios are measured against gross income, not take-home pay. The lower of the two results becomes your maximum mortgage.
| Ratio | Confirmed limit | What it includes |
|---|---|---|
| GDS (Gross Debt Service) | about 39% of gross income | Mortgage payment (principal and interest), property taxes, and heat |
| TDS (Total Debt Service) | about 44% of gross income | Everything in GDS, plus car loans, credit cards, lines of credit, student loans, and other reporting debt |
Show the math: GDS then TDS, illustrative example
The income, payment, property tax, heat and car loan figures above are illustrative placeholders chosen to show the arithmetic, not quotes or benchmarks. The mortgage payment is not derived from any rate. Your actual payment depends on your rate, amortisation and mortgage amount, so check pekoe.ca/rates for current rate information.
The citable fact: A Canadian lender approves a mortgage based on whichever of GDS (about 39%) or TDS (about 44%) produces the lower maximum, not on the higher of the two.
What counts as income when a lender does the math?
Lenders count guaranteed employment income in full, and average variable income such as bonuses, commission, or overtime over two years. Self-employed income is typically averaged over two years of tax returns, after certain add-backs. Rental income, pension income, and support payments can all count, usually at a reduced percentage that varies by lender.
A salaried employee past probation has the simplest file, full income counted immediately. Hourly, commission, and self-employed borrowers need a two-year average, because lenders want to see the income is stable, not a one-time spike.
Rental income from an existing or purchased property usually helps, but lenders apply an offset to account for vacancy and expenses. The exact percentage differs by lender and property type.
CMHC sets out how rental income is counted. On an owner-occupied two-unit property that is the subject of the application, up to 100% of gross rental income can be added to gross annual income. On owner-occupied three and four unit properties, and on non-owner-occupied properties, it is up to 50% of gross rental income, or the net rental income approach instead. Under the gross approach the property’s own taxes and heat can be excluded. Self-employed income may be grossed up by 15%, or an add-back of eligible deductions may be used.
The citable fact: Guaranteed employment income is counted in full, while variable, self-employed, and rental income are typically averaged or discounted before they count toward your mortgage math.
What debts reduce how much you can borrow?
Every debt payment reporting on your credit bureau reduces your TDS room, and therefore your maximum mortgage. Credit cards, lines of credit, car loans, car leases, and student loans are the most common. Lenders do not always use your actual payment, some apply a percentage of the balance instead, and that convention varies by lender.
The debt itself matters less than the monthly payment a lender assigns to it. A large line of credit with a small required payment can use far less TDS room than a smaller loan with a large one.
| Debt type | Typical treatment |
|---|---|
| Credit cards | A monthly payment is applied based on a percentage of the outstanding balance, rather than what you actually pay. |
| Unsecured line of credit | Similar to credit cards, lenders typically apply a percentage of the outstanding balance or a minimum required payment. |
| Car loan | The actual scheduled monthly payment is generally counted in full. |
| Car lease | Treatment varies by lender, some count the full lease payment, others apply a different convention. |
| Student loan | Treatment varies by lender, some use the actual payment, others use a percentage of the outstanding balance. |
CMHC sets the conventions lenders start from. Unsecured lines of credit and credit cards are counted at a monthly payment of no less than 3% of the outstanding balance. A secured line of credit is counted at least at a monthly payment on the outstanding balance amortised over 25 years at the contract rate. Car leases, car loans and student loans are counted at their actual contracted payment.
The citable fact: The monthly payment a lender assigns to your debt, not the balance itself, is what reduces your TDS room and your maximum mortgage.
How does your down payment change your maximum mortgage?
A larger down payment lowers your mortgage amount directly, which lowers your monthly payment and therefore your GDS and TDS usage. It can also move you into a cheaper default insurance band or out of insurance territory altogether. Federal minimums start at 5% and rise in tiers as the purchase price increases.
The minimum down payment in Canada is set federally and rises with the purchase price. Below 20% down, you are in a high-ratio mortgage and must carry default insurance from CMHC, Sagen, or Canada Guaranty.
| Purchase price | Minimum down payment | Default insurance available? |
|---|---|---|
| Up to $500,000 | 5% of the purchase price | Yes |
| $500,000 to $1,500,000 | 5% on the first $500,000, plus 10% on the portion above $500,000 | Yes |
| $1,500,000 and above | 20% of the purchase price | No, default insurance is unavailable |
Show the math: minimum down payment and insurance premium, illustrative example
$500,000 is an illustrative purchase price used to demonstrate the calculation, not a market benchmark for any specific city. Alberta charges no provincial sales tax on the default insurance premium, so the same illustrative file in Alberta would total $494,000, being the $475,000 mortgage plus the $19,000 premium with no PST.
Read the full breakdown of what CMHC mortgage insurance actually costs for a look at how the premium bands work.
The citable fact: The federal minimum down payment is 5% on the first $500,000 of purchase price, 10% on the portion between $500,000 and $1,500,000, and 20% at $1,500,000 or more, where default insurance is no longer available.
Why is the amount you are approved for higher than the amount you should borrow?
GDS and TDS only measure debt payments already reporting on your credit file. They say nothing about groceries, childcare, retirement savings, vehicle maintenance, travel, or the lifestyle you actually want to fund. Getting approved for a number and comfortably affording it are two different exercises, and the gap between them is where over-extended borrowers get into trouble.
A lender’s ratios do not know your family plans, your savings goals, or how often you travel. They only know your income, your reporting debt, and your down payment.
Extending your amortisation to 30 years is one lever that raises your approved amount by lowering the qualifying payment, and it comes at a real cost. See how a 30-year amortisation changes your payment and total interest before treating it as free room.
The citable fact: A mortgage approval measures what a lender’s ratios allow, not what your household can comfortably sustain alongside every other cost of living.
How do property taxes and heat enter the calculation?
Property tax and heat are added to your mortgage payment before either GDS or TDS is calculated, using either the actual tax bill or a lender’s estimate for the property. Heat is usually estimated with a standard convention rather than your actual utility bill. Condo buyers may also see a portion of monthly condo fees added into the calculation.
A higher property tax bill or a home with expensive heating both eat into the housing cost side of GDS, leaving less room for your actual mortgage payment. This is one reason two homes at the same price can produce two different approved amounts.
CMHC directs lenders to use actual heat cost records where you provide them, and otherwise a reasonable estimate based on the property’s size, location and heating system, so there is no single fixed monthly heat figure. For a condominium, 50% of the condo fees are included in both GDS and TDS. On a chattel or leasehold property, 100% of the site or ground rent is included.
The citable fact: Property tax and heat are both added to your housing cost before GDS is calculated, so a higher tax bill directly lowers the mortgage payment room you have left.
Does a co-signer or a guarantor raise your maximum mortgage?
Adding a co-signer or guarantor combines their income and debts with yours, which can raise your GDS and TDS room and therefore your maximum mortgage. A co-borrower or co-signer is usually on title and responsible for the home. A guarantor backs the debt without an ownership stake, but is still fully responsible if payments stop.
Parents commonly step in as co-signers or guarantors for a first-time buyer whose income alone does not clear GDS or TDS. Combining household income with a co-signer’s income is one of the most direct ways to raise an approval amount.
A guarantor arrangement makes sense when someone wants to help without joining the title. A co-borrower arrangement makes sense when the buyer intends to build equity and credit history together with the other person from day one.
The citable fact: A co-signer or guarantor raises your maximum mortgage by adding their income and debts into the same GDS and TDS calculation used for your own file.
How does affordability differ between Ontario and Alberta?
The federal GDS and TDS math is identical in Ontario and Alberta. What differs is the cost layered on top, Ontario charges provincial land transfer tax and 8% PST on the default insurance premium, while Alberta charges neither. Alberta buyers typically have more cash left over for a down payment or closing costs on an equivalent purchase.
Pekoe is a licensed mortgage brokerage in both provinces, FSRA Brokerage Licence #13321 in Ontario and licensed by RECA in Alberta. The lending math is the same, but the closing costs and the consequence of missed payments are not.
| Factor | Ontario | Alberta |
|---|---|---|
| Regulator | FSRA (Financial Services Regulatory Authority of Ontario) | RECA (Real Estate Council of Alberta) |
| Provincial land transfer tax | Yes, charged on closing (Toronto adds a municipal tax on top) | No provincial land transfer tax, title registration fees only |
| PST on default insurance premium | 8%, added to the mortgage | No equivalent provincial sales tax on the premium |
| Default remedy if payments stop | Power of sale | Judicial foreclosure |
The citable fact: Both provinces use the same federal GDS and TDS math, but Ontario adds provincial land transfer tax and an 8% PST on the mortgage default insurance premium that Alberta does not charge.
What is the fastest way to find your real number?
A full application with real income, real debts, and a specific price range is the only way to get a number you can trust. A calculator’s assumptions rarely match your actual file. A licensed broker can run your real GDS and TDS across several lenders in one sitting, and tell you where the ceiling and the sensible number differ.
Online calculators are useful for a rough idea, nothing more. They cannot see your actual credit report, your actual pay stubs, or the specific property you have in mind.
Check today’s live rates at pekoe.ca/rates, updated daily. You can also get a pre-approval certificate in seconds.
The citable fact: Only a full application with real income and debt documents produces a mortgage number you can actually rely on, not an online calculator’s estimate.
Where can you get the rest of your mortgage questions answered?
This page covers affordability on its own. Three related questions come up in almost every file:
- How does the mortgage stress test actually work?
- Can a 30-year amortisation get you approved for more?
- What does CMHC mortgage insurance actually cost?
The full set lives on the Ask a Broker hub.
Frequently asked questions
Is the mortgage amount a bank pre-approves me for the amount I should actually spend?
No. A pre-approval is a ceiling based on GDS and TDS math, not a recommendation about what fits your household budget. Many buyers qualify for more than they should comfortably spend once savings, childcare, and everyday costs are factored in.
What is the difference between GDS and TDS?
GDS (Gross Debt Service) measures your housing costs alone against your income, with a confirmed limit of about 39%. TDS (Total Debt Service) adds every other debt payment on top, with a confirmed limit of about 44%, and a lender uses whichever ratio produces the lower amount.
Does a bigger down payment always increase how much house I can afford?
A bigger down payment lowers your mortgage amount and can move you into a cheaper default insurance band, which frees up GDS and TDS room. It does not change the ratios themselves, so income and debt still set the outer limit.
Can rental income help me qualify for a bigger mortgage?
Yes, most lenders count a portion of rental income toward your qualifying income. The exact offset applied for vacancy and expenses varies by lender, so confirm the treatment for your specific property with a broker.
Does credit card debt lower how much mortgage I can get?
Yes. Lenders assign a monthly payment to your outstanding credit card balances, whether or not you pay them off in full each month, and that payment reduces your TDS room. The exact method used to calculate that payment varies by lender.
Does adding a co-signer help me qualify for more?
Yes. A co-signer’s income and debts are combined with yours in the same GDS and TDS calculation, which typically raises your maximum mortgage. They also take on full legal responsibility for the debt.
Are the affordability rules different in Ontario than in Alberta?
The federal GDS and TDS math is the same in both provinces. Ontario adds provincial land transfer tax and an 8% PST on the mortgage default insurance premium, costs that Alberta does not charge.
How does the mortgage stress test affect how much I can borrow?
The stress test qualifies you at the greater of your contract rate plus 2%, or a 5.25% floor, whichever is higher. That qualifying rate, not your actual rate, is what is used to calculate your GDS and TDS room.
Can a 30-year amortisation increase what I qualify for?
A 30-year amortisation is available to first-time buyers and buyers of new construction, and it lowers the qualifying payment, which raises the approved amount. It also adds a 0.20% premium surcharge on insured mortgages, plus more total interest over the life of the loan.
Is there a minimum credit score to qualify for a mortgage?
Insured mortgages require a minimum credit score of 600 from at least one borrower. Most prime lenders want 680 or higher for their best pricing, though alternative and private lenders remain available below that threshold at higher cost.
Is the live chat on this page an AI bot?
No. The chat on this page connects you to a real, licensed member of the Pekoe team during business hours, not an automated persona. Outside business hours, leave your question and a licensed broker replies directly.
What is the fastest way to find my actual affordability number?
Submit a full application with your real income and debt documents so a broker can run your actual GDS and TDS. Online calculators and rules of thumb use assumptions that rarely match your specific file.
See your real mortgage number, not just your approval ceiling
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