Take a household earning $120,000 a year, with $500 in monthly debts and a $60,000 down payment. It can afford a home of about $533,556. The figure comes from a maximum payment of $3,417 a month and a loan of about $488,236, both worked out at the stress test rate.
The two limits lenders use
Lenders run two ratios. One covers housing costs, meaning your mortgage payment, property tax, heat and half of any condo fees, and it should stay under 39% of your gross income. Then there is the total debt ratio, which adds your other debt payments to those housing costs and should stay under 44%. These are common guidelines, and some lenders set different limits. The calculator uses the lower of the two payments.
How the stress test works
A lender checks your payment at a higher rate than the one you will actually pay. The test rate is your contract rate plus 2 points, or 5.25%, whichever is higher. At a 4.99% rate the test rate is 6.99%. Drop the rate to 3.99% in the example and the test rate becomes 5.99%, which lifts the price to about $578,440.
How debts change the answer
Debts matter. More than most people expect. With no debts at all, the example still reaches $533,556, because the housing ratio is the tighter limit. Raise your monthly debts to $1,500 and the total debt ratio takes over, cutting the price to about $395,931. Clearing a car loan can lift your limit more than a raise at work.
When the down payment is the limit
Income isn’t the only ceiling. Sometimes the deposit is. The federal minimum down payment grows with the price, so a small deposit caps what you can buy. With only $20,000 down, the calculator stops at $400,000, the price where 5% equals your deposit. You will see a note in the result box when this happens.
What to enter
Use gross income, before tax, for everyone on the mortgage. Add every monthly debt payment, from student loans and credit cards to car payments and any other loan that shows up on your credit report. For property tax, use a real bill or the Toronto property tax calculator. Heating is a monthly average, and condo fees count for only half.
Shortcuts that mislead
A popular rule of thumb multiplies income by four or five. On $120,000 that gives $480,000 to $600,000, a wide range that ignores your debts, your down payment and the stress test. This calculator applies the same ratios lenders do, so the answer moves when those inputs move.
Ways to raise your number
Three changes help most. Pay off debts. That lowers the total debt ratio. Add to your down payment, which lifts the ceiling when the deposit is the limit. Apply with a co-borrower, whose income raises both ratios. A lower rate helps as well, since it also lowers the stress test rate.
Where to go next
An estimate is a start, nothing more. Test a specific home with the mortgage payment calculator and check the minimum with the down payment calculator. A lender’s pre-approval gives you the number that counts.
Frequently asked questions
How much mortgage can I afford on $120,000 a year?
With $500 in monthly debts and a $60,000 down payment, about $533,556 in purchase price on the default numbers.
What are the 39% and 44% limits?
Lenders guide housing costs to 39% of gross income and total debt payments to 44%.
What is the mortgage stress test?
You must qualify at the higher of your contract rate plus 2 points or 5.25%.
Do debts reduce how much I can borrow?
Yes. The total debt ratio can become the tighter limit and lower your price a lot.
Why does my down payment limit the price?
The minimum down payment grows with the price, so a small deposit caps what you can buy.
Is this the same as a pre-approval?
No. It is an estimate. Only a lender can approve you.
Sources and updates
Last reviewed: . Full disclaimer. How we build calculators. Editorial policy.
Estimate only. This calculator gives general information for planning. It is not tax, legal or financial advice, and it is not affiliated with the City of Toronto, MPAC or the Canada Revenue Agency. Results depend on the numbers you enter and may differ from official amounts. Check official sources or a qualified professional before you decide.