What income do you need for this mortgage?

How required income works in Canada

Lenders don’t ask “how much can this person afford?” — they ask “does the income clear our ratios?” Two ratios do the gatekeeping. GDS(Gross Debt Service) caps your housing cost at about 39% of gross monthly income. Housing here means PITH: principal, interest, property taxes, heat, and half of any condo fees. TDS (Total Debt Service) adds your other monthly obligations — car loans, credit cards, lines of credit, support payments — and caps the combined total at roughly 44%. To reverse the math into an income, you take the monthly housing cost (and debts), divide by the ratio, and gross it up to a yearly figure. The income you actually need is whichever ratio demands more. One important detail: lenders run these numbers at the stress-test qualifying rate — the greater of your contract rate plus 2% or 5.25% — not the rate you’ll actually pay.

What affects the income you need

Anything that changes your monthly carrying cost changes the income. A bigger down payment shrinks the mortgage and the principal-and-interest portion of PITH. A higher rate — or the stress-test buffer on top of it — pushes the payment up and the required income with it. Property taxes and condo fees are part of housing cost, so a high-tax municipality or a building with steep fees raises the bar even at the same price. And your other debts matter through TDS: every $500 a month in car and card payments is income you have to earn before the mortgage even enters the picture. Amortization is the quieter lever — a longer payoff period lowers the monthly payment, which lowers the income needed to qualify.

A worked example

Take an illustrative couple buying a $720,000 home with 20% down ($144,000), leaving a $576,000 mortgage. Assume a 5-year fixed at 5.04% (an example rate, not today’s quote); qualification uses the stress-test rate of 7.04%. At that qualifying rate over 25 years, principal and interest run roughly $4,070 a month. Add an estimated $600 in property tax (about 1% of the price annually) and $150 in heat, and their PITH is about $4,820 a month.

On GDS, $4,820 ÷ 0.39 × 12 points to about $148,000 in household income. They also carry $400 a month in car and card payments, so TDS checks ($4,820 + $400) ÷ 0.44 × 12, which lands near $142,000. The binding ratio is the higher one — here GDS — so a lender would want to see roughly $148,000 in combined household income. Two salaries can be added together to reach it. Change the price, rate or debts on the sliders above and watch which ratio binds.

How to lower the income required

If the income figure is out of reach, you have several real moves. A larger down payment cuts the mortgage and the payment behind both ratios. Paying down other debts — especially clearing a car loan or a balance on a line of credit — frees up TDS room directly, often more cheaply than saving the equivalent down payment. A longer amortization (30 years where you qualify) lowers the monthly payment and the income it demands, at the cost of more interest over time. Adding a co-applicant or co-signer brings their income into the calculation — though their debts come along too. And shopping for a lower rate trims the payment the ratios are measured against. Often the fastest path is a combination: clear one debt and add $20,000 to the down payment.

Related scenarios

This calculator answers “what income do I need for this home?” The flip side — “what home can I afford on my income?” — is the affordability calculator. Because qualification hinges on the stress-test rate, it’s worth seeing that buffer on its own with the stress test calculator. And once you’ve settled on a price and down payment, confirm the real monthly payment behind these ratios in the payment calculator.

Sources

• CMHC, General requirements for homeowner mortgage loan insurance (GDS 39% including principal, interest, taxes, heat and 50% of condo fees; TDS 44%).
• OSFI, Minimum qualifying rate for uninsured mortgages (greater of contract rate + 2% or 5.25%).