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Affordability 101: tips for future homeowners

affordability 101: tips for future homeowners

Always dreamt of owning a home but confused by all that complex real estate lingo?

Don't worry, we’re here to help! Today we’re going to talk about the “Housing Affordability Index”.

What is the Housing Affordability Index?

The Housing Affordability Index (or mortgage affordability) is a way of calculating if you can afford to buy a home and cover the related costs.

Why is it important?

All future home buyers dream of the benefits that come with owning a home. But for some, the dream soon becomes a nightmare when poor planning turns their beautiful new home into a money pit. That’s why it’s crucial to have a good handle on affordability.

How do you calculate affordability?

Mortgage affordability can be calculated using debt ratio equations:

1-      Gross debt service (GDS) ratio

2-      Total debt service (TDS) ratio

What is the gross debt service (GDS) ratio? It’s a calculation for ensuring that your monthly housing costs (monthly mortgage and interest payments, property taxes [municipal and school] and heating costs) don’t exceed 32% of your gross debt service. For condos, the calculation should also include 50% of the condo fees.

The GDS ratio is calculated as follows:

Monthly mortgage and interest payments + monthly property taxes + Monthly heating costs

Should be <32%

Gross monthly income



Example (based on gross annual income of $72,000):

$6,000  X

32%  =


Gross monthly income

GDS ratio

Taxes and expenses should not exceed this amount


To determine the monthly mortgage payments you can afford, subtract the heating costs and the school and municipal taxes from your answer above (32% of your gross monthly income).


For example:

$1,920   -

$150             -

$300 =


Amount that your total taxes and expenses should not exceed

Heating costs

Property taxes

Maximum monthly mortgage payment


The total debt service (TDS) ratio can be calculated by adding up your housing costs (including mortgage payments), monthly credit card interest, monthly car payments and monthly loan payments and dividing it by your gross monthly income. For the TDS, the ratio is 40%.

Housing costs + Monthly credit card interest + Monthly car payments + Monthly loan payments

Should be <40%

Gross monthly income


For example:

$6,000        X

   40%          =


Gross monthly income

TDS ratio

Monthly expenses should not exceed this amount


To determine the monthly mortgage payment you can afford, subtract the heating costs, property taxes, credit card interest, car payments and other outstanding loans from your answer above (40% of your gross monthly income).

$2,400   -

$150              -


= 1,350

Maximum monthly mortgage payment

Amount that your total monthly expenses should not exceed

Heating costs

Property taxes

-    $50

-    $350

-    $200

Credit card interest

Car payments

Student loan








Now look at the maximum monthly mortgage payment obtained using each method. The smaller of the two is the one best suited to your needs.


Calculate your affordability first

Before you even get into the planning process, it’s important to think about how much you can afford. It’s never too early to crunch the numbers. Here are a few tips:

1-      Determine how much you can spend on a home by drawing up a budget and sticking to it. Use a smart phone app to track your monthly spending and monitor your day-to-day expenses. Are there ways to reduce your expenses? Seeing the numbers in black and white may give you the motivation you need to be more thrifty.

2-      Put together a list of the key things you’re looking for in your dream home. What are your priorities, and do they involve any unnecessary costs? (public transportation or parking, proximity to leisure activities, number of rooms, garden to maintain, etc.). Figure out what’s most important to you.

3-       Draw up a budget of how much you’ll need each month to meet your new financial obligations and start following it now to see how feasible it is. If you're having trouble making it work, you may need to rethink your priorities.

4-      Be realistic. Put together a plan that will allow you to keep up with your mortgage payments if you were to lose a key source of income (e.g., a spouse who’s a co-owner, a big client if you’re self-employed, etc.).

5-      Contact a credit agency for a copy of your credit report. This report can help you look at your solvency more objectively.

Once you figure out your affordability, your budget and your priorities, the next step is to choose the right team of professionals to guide you through this exciting adventure. At Planiprêt, we have a team of real estate experts ready to give you the advice and support you need for planning and achieving your home ownership goals. Talk to our experts today!



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July 2 2020

1 Year Fixed 3.99% 2.14%
2 Years Fixed 3.89% 2.14%
3 Years Fixed 4.34% 2.14%
4 Years Fixed 4.89% 2.24%
5 Years Fixed 4.94% 2.24%
5 years Variable 2.45% 1.99%
7 Years Fixed 5.80% 2.39%
10 Years Fixed 6.60% 2.84%
HELOC 2.45% 3.05%

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