Know the answer before the lender does. Enter the file and you get the qualifying rate, the payment, both ratios and the ceiling on price.
How this tool worksHalf of any strata or condo fee is counted toward the ratios, the usual lender treatment. Payments use semi annual compounding.
This file is over at least one ratio. Reduce the price, add down payment or clear debt.
An estimate for structuring conversations, not an approval. Lender ratio limits, income treatment and rate holds vary. A.I.M.I. Collective brokers can send the file to the Deal Desk for a real second look.
Gross debt service, GDS, is the share of a borrower's gross income that goes to housing: the mortgage payment, property taxes, heating and half of any condo fees. Total debt service, TDS, adds every other monthly obligation on top: car loans, credit card minimums, lines of credit, student loans and support payments. Both are expressed as a percentage of gross annual income, before tax.
Every lender sets a ceiling for each ratio. On default insured mortgages the insurers cap GDS at 39 percent and TDS at 44 percent. Most A lenders apply the same ceilings to conventional files, with some discretion for strong credit. B lenders commonly allow higher ratios, sometimes 50 percent on both, and price for the risk. Private lenders may not use the ratios at all and lend on the property instead. The ratio is calculated at the qualifying rate, not the contract rate. At the time of writing the minimum qualifying rate is the greater of the contract rate plus two percentage points or 5.25 percent, which is why a client who can afford the payment can still fail to qualify.
The tool takes the contract rate you enter and qualifies at the greater of that rate plus two points or 5.25 percent. It builds the monthly payment on the mortgage amount over the amortization you set, using the semi annual compounding Canadian mortgages use, then adds property taxes, the heating allowance and half of the strata or condo fee and divides by gross monthly income for GDS. It adds the other monthly debt payments and divides again for TDS. Both ratios are shown against the 39 and 44 percent ceilings, and the tool works backwards to the maximum purchase price the income supports, capped by the minimum down payment rules when the deposit is the binding limit.
Four inputs move the number more than the rest. The qualifying rate, since two points on a $600,000 mortgage is several hundred dollars a month. The amortization, since 30 years qualifies more than 25. The income used, since variable income is usually averaged over two years and self employed income is taken from notices of assessment, not from the business bank account. And the treatment of revolving credit, since many lenders count a line of credit at a payment on the limit rather than the balance.
Quote the ratio before the credit pull and you will re quote it after. Use gross income, never net. Include heat even when the client says it is included in the strata fee. Check how the lender treats a secured line of credit, because some count the full limit. And remember the ratios are the ceiling, not the target: a client at 43.9 percent TDS has no room for a rate change at renewal.
The qualifier is an estimate for planning a conversation. The lender's own calculation on the submitted file is the one that counts.