How Much Mortgage Can I Afford?

When our clients ask us “How Much Mortgage Can I Afford?”, it usually means that their mortgage amount will be limited by their income. Everyone has heard about the dreaded “stress tests” in Canada now. These are the tests that everyone has to pass to be approved for a mortgage in Canada. Or do they?…….

How Much Mortgage Can I Afford? Does It Depend On The Stress Test?

Unfortunately, you don’t decide if you can afford a mortgage. The Government has placed checks and balances in place to make sure you don’t get in over your head. But the real reason is that they just wanted to calm down the real estate market. How did they do this? By making everyone who is applying for a mortgage, prove that they can afford a mortgage at a much higher rate than the current rates and amortized over 25 years (which inflates the payments).

There Are Ways Around The Stress Tests

If you are trying to afford a mortgage that the stress tests will not allow, there are ways “around them”. But you pay for it! First, you MUST have 20% or more down. Why? Because if you have less than 20% down, CMHC becomes involved and as soon as that happens: STRESS TESTS APPLY. 🙁

If You Have 20% Or More Down The Game Changes – A Little…

If you have more than 20% down, we as mortgage brokers have a little more flexibility because you are no longer on the Government’s radar. When you have more than 20%, we can do a couple of things to help you qualify for more. For one, we can “stress test” you at a lower rate. We can also test your ability to afford the mortgage by increasing the amortization to 30 years. By “stress testing” you at a lower rate and over 30 years, it pushes down the payments and makes the mortgage more affordable.

The Drawbacks

The first drawback of using these methods to qualify you for more mortgage is that you will be stuck with a higher rate. Not the inflated stress test rate, but still a higher rate than what you would enjoy if you were able to pass the stress tests.

The second drawback of using this method is that there is a danger it will stretch you out a little too thin. Meaning, yeah, you get that big mortgage because we were able to circumvent the system, but we also don’t want you eating Kraft dinner every night. (Personally I like Kraft dinner, but I don’t want my budget to force me to eat it!!)

If you are wondering how much mortgage can I afford, give us a call or write. We would be happy to get more specific! No obligation as usual! 🙂

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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