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Monthly Mortgage Payments, Can You Afford Them?

At this point you are likely just starting off your search for your home.  Like most people at this stage, you probably haven’t spoken to your bank or a mortgage broker to get more specific details on financing.  Getting pre-approved for a mortgage is the best way to know how large of a mortgage the bank will loan you and to get a more accurate idea of your monthly payments.

Estimating Your Maximum Monthly Payments

Banks in the marketplace typically allow a mortgagor to use up to 32% of their gross income to service their mortgage payments (interest and principal) and property taxes.  Please note that the 32% gross debt service ratio varies from bank to bank and can be as low as 27%.   The formula to calculate your affordable monthly payments is:

The math is very simple.  With an example, I hope becomes clearer.

Let’s assume Bob makes $55,000 and he’s asked around to find that property tax for the neighbourhood he wants to live in is $3,500 annually.

Estimating Your Total Mortgage

The attached schedule is an approximation of monthly mortgage payments at different interest rates for mortgage loans of varying amounts. If you’ve calculated your estimated maximum monthly mortgage payment with the formula above, you can now get an idea of the size of the mortgage you can service.

Other Factors to Consider

Your income is not the lone determining factor when applying for a mortgage.  The size of your down payment and credit history among other things are also taken into consideration.  Contacting a mortgage professional is the best and most accurate way figure out what you can afford if you’re serious about becoming a home owner.