How Much Mortgage Can I Afford In Toronto?

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So you’ve decided to take the plunge and buy property in Toronto? Congratulations! This is the start of an exciting journey towards homeownership in ‘The Six’. While the process of buying a home in Toronto isn’t always going to be smooth sailing, in the end, it will no doubt be a worthwhile feat. So be ready to persevere to get yourself the sweet deal you are after. 

Unfortunately, property in Toronto doesn’t come cheap. According to current real estate trends, the average home in Toronto sells for just under CAD 1 million. Naturally, what you should expect to pay will depend on a number of factors including whereabouts in the city you choose to live in and the type of property you are after. Regardless, the chances are that most people will need a mortgage in order to purchase a home. The amount of mortgage you can afford depends on a variety of factors all of which need careful consideration if you want to avoid some of the common mistakes made by novice property buyers

While the mortgage calculators available on the lenders websites can give you a good indication of the mortgage amount you’d be eligible for, if you are keen to dig a little deeper here are the main factors you’ll need to consider when asking yourself: How much mortgage can I afford in Toronto?

Your Credit Score

Having a good credit score is a central to determining how much mortgage you can afford in Toronto. It provides a good insight into a person’s financial health and gives mortgage lenders an indication of your trustworthiness and ability to repay debt in a timely fashion. A score of 660 or more will mean you are likely to be offered more favorable mortgage rates. 

As well as your overall credit score, a credit report will provide more detailed information about your overall debt levels, the number of accounts you have open, any late payments, and the length of your credit history. To ensure you have a good credit history you should make sure all your loans and bills are paid on time and you aren’t using too many credit facilities. 

The Size of Your Deposit

The next factor which will determine how much mortgage you can afford will be the size of your deposit. To buy property in Toronto you’ll need to provide a downpayment of some sort. Simply put, the larger your down payment, the less you’ll need to borrow and the lower the interest you’ll have to pay. 

The minimum required down payment will differ according to the price of the home you are looking to purchase. As is the case throughout Canada, when looking to buy a home in Toronto the minimum downpayment requirements are based on the property price. 

  • If the property if less than CAD 500,00 – the downpayment required in 5 percent of the purchase price
  • For a property priced between CAD 500,000 – 999,000 – you’ll need 5 percent of the first CAD 500,000 and then 10 percent of the portion above that. 
  • For anything priced over CAD 1 million the downpayment will amount to 20% of the price. 

Furthermore, It is important to bear in mind that if your down payment is less than 20 percent of the property price, you’ll be required to purchase mortgage loan insurance which subsequently increases your monthly repayments. 

Ideally, you should save as much as possible for your deposit on a property. Although, in reality this is easier said than done, especially in a city like Toronto where property prices are increasing at a phenomenal rate. 

Your Income and How Stable It Is

Having a stable monthly income plays a central role when it comes to getting a mortgage. Lenders need proof that you have a regular stable income that will allow you to pay off your mortgage. Having a solid employment history will also act in your favor. 

In terms of the amount of mortgage you’ll be able to afford, this will directly increase according to how much you earn. If you are planning on buying a property with a partner, then it’ll directly correlate with your joint income.

It’s worth bearing in mind that if you work as a freelancer, getting a mortgage will be more difficult as your income is less likely to be secure or stable,  It isn’t impossible but trying to secure formal employment, even if it is a part-time position, will help you afford a better mortgage with a lower rate which could potentially save you a lot of money in the longer-term future. Self-employed business owners may also struggle as they’ll need to provide backdated information on their business income to demonstrate that the company is profitable. 

Your Regular Monthly Spending and Lifestyle Expenses

In combination with your monthly income, your spending habits too will have an impact on how much of a mortgage you can afford in Toronto. A mortgage lender will take into account your monthly outgoings including debt repayments as well as other financial obligations when deciding how much you qualify for. 

While it may be possible for you to make some cutbacks in terms of certain lifestyle expenses, it is also important to be realistic about how sustainable these are. Each person’s expenses vary depending on whether they are paying for childcare, or need to support aging parents, etc. These are lifestyle factors that aren’t always so apparent. 

Your Plans for The Future

Even though you aren’t obliged to disclose your future plans to the bank when applying for a mortgage, it is in your interests to be honest with yourself at least. 

If you are planning to quit your full-time job or have kids in the near future then the financial implications of these decisions should also be factored in when asking yourself how much mortgage can I afford in Toronto?

The Additional Costs Associated With Homeownership

When considering how much of a mortgage to take out, one thing many people forget to bring into the equation is the additional costs associated when buying a home. Expenses such as the cost of home inspections and transfer fees, usually amounting to around 3-4 percent of the property promise in Toronto, need to be factored in. 

Furthermore, homeownership, in general, is an expensive pursuit, and it’s certainly very different from renting property. You’ll now be expected to pay for utilities, property taxes, maintenance, and repairs, much of which would have been costs incurred by your landlord. So it’s wise to resist the temptation to spend every dollar you might be approved for and allow a little financial cushioning for the miscellaneous costs you are likely to occur further down the line. 

The Type of Mortgage and Interest Rate

Another important factor you’ll need to consider is the nature of the mortgage itself and most importantly the interest rate attached to it. Doing your homework and finding a lender that will offer you a mortgage with a lower rate will save you a small fortune further down the line. 

A better mortgage rate will mean your monthly payments will likely be manageable. Enlisting the services of a mortgage broker could be useful in terms of getting personalized advice on the best mortgage deal for you. These professionals have an intimate knowledge of the real estate industry in Toronto and are well placed to guide you through the process of securing a good mortgage deal and buying your home. 

Purchasing property in Toronto is a big step and getting the necessary mortgage is all about getting your financial affairs in order. How much mortgage you can afford in Toronto is dependent on a combination of factors such as a good credit score, how successfully you are able to manage your debt, and the deposit you have available. It also requires a person to think reasonably about their lifestyle expenses as those they might incur should circumstances change in the future. So make the effort to consolidate your finances and have a realistic insight into how much mortgage you are able to afford for purchasing a home in the sought-after city of Toronto. 

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