Wondering what you can afford? Purchasing a Muskoka cottage or home involves one-time costs and monthly expenses. The largest one-time cost is the down payment on your mortgage. It usually represents between 5 – 25% of the total price of the property. In addition to the actual purchase price, there are a number of other expenses you might be expected to pay. These are listed in the following table:
|
EXPENSE |
WHEN TO BE PAID |
|---|---|
|
Mortgage Application and Appraisal Fee |
At time of application |
|
Property Inspection (optional) |
At Inspection |
|
Legal Fees |
At closing |
|
Legal Disbursements |
At closing |
|
Property Survey (sometimes provided by seller) |
At closing |
|
Land Transfer, Deed Tax or Property Purchase Tax |
At closing |
|
Mortgage Interest Adjustment and Take Over Fee (if applicable) |
At closing |
|
Mortgage insurance (if applicable) |
At closing |
|
Home and Property Insurance |
At closing and ongoingly |
|
Moving Expenses |
On date of move |
Typical monthly costs incurred with home ownership are mortgage payments, maintenance, insurance, condo fees, property taxes and utilities. See the “What You Can Afford” Worksheet to help you estimate the purchase price of a home you can afford.
Most lenders say that your monthly housing expenses (principal, interest and taxes) should not exceed 30% of your family income (before personal income taxes).
To calculate your Gross Debt Service Ratio (GDS):
| Take your total monthly gross (before tax) income | $__________________ |
| Multiply it by the maximum GDS Ratio (30%). x .30 | $__________________ |
| This is the maximum amount available for your mortgage payment (principal and interest), property taxes and 50% of condo fees (if applicable) | = $__________________ |
Example: Ben and Kate have a gross family income of $80,000 per year, or $6,700 per month. No more than $2000 ($6,700 x 30%) can be applied to housing expenses.
Your TDS takes into account monthly housing expenses plus other debts and loans you may have.
To calculate your Total Debt Service Ratio (TDS):
| Take your monthly gross (before tax) income | $__________________ |
| Multiply it by the maximum TDS ratio (40%) x .40 | $__________________ |
| Subtract your regular monthly expenses (e.g. credit cards, car payments, personal loans) | – $__________________ |
| This is the maximum amount available for your mortgage payment, property taxes and 50% of condo fees (if applicable) | = $__________________ |
Example: Ben and Kate have a gross family income of $80,000 per year, or $6,700 per month. They also have two car payments totalling $650 per month, a student loan of $100 per month, and credit card payments of $100 per month. They can apply no more than $1,830 of their monthly income to housing costs ($6,700 x 40% = $2,680 – $850 = $1,830).
This figure will be used to calculate how much mortgage you are eligible for.
To calculate this amount:
| Identify the lower of your GDS or TDS | $__________________ |
| Subtract an appropriate amount for property tax | – $__________________ |
| This is the amount we will now use to calculate how much mortgage you are eligible for |
= $__________________ |
Using the example of Ben and Kate, their TDS ($1,830) is lower than their GDS ($2,000) and they estimate their property taxes will be $200 per month. They have $1,630 available to apply to their monthly mortgage payment. (i.e. $1,830 – $200 = $1,630)
· Using the figure calculated in Step 3, find the closest matching number in column A.
· The corresponding number in column B is your approximate eligible mortgage amount.
· In column C record the down payment amount that you have available.
· In column D add the numbers identified in columns B and C together.
This equals approximately the price of the home that you can afford. In the example of Ben and Kate, the amount calculated in Step 3 was $1,630. They also have saved a down payment of $30,000. With a monthly payment of $1,630 (refer to column A) they are eligible for an approximate mortgage of $130,000 (refer to column B). With their down payment of $30,000, they can afford to buy a home worth approximately $160,000.
|
A |
B |
|---|---|
|
Monthly Payment |
Eligible Amount of Mortgage |
(cost includes principle and interest payment per month based on interest rate of 6.75% and 25 year amortization)
|
$686 |
$100,000 |
|
$823 |
$120,000 |
|
$960 |
$140,000 |
|
$1,097 |
$160,000 |
|
$1,234 |
$180,000 |
|
$1,371 |
$200,000 |
|
$1,713 |
$250,000 |
|
$2,056 |
$300,000 |
|
$2,398 |
$350,000 |
|
$2,741 |
$400,000 |
|
$3,083 |
$450,000 |
|
$3,426 |
$500,000 |
|
$3,768 |
$550,000 |
|
$4,111 |
$600,000 |
|
$4,453 |
$650,000 |
|
$4,796 |
$700,000 |
|
$5,138 |
$750,000 |
|
$5,481 |
$800,000 |
|
C |
D |
|---|---|
|
Down Payment Available |
House Price You Can Afford |
|
+ ________________ |
= ________________ |
Don’t forget that the down payment must be at least 20% of the purchase price of the home, unless you qualify for Canadian Mortgage and Housing Corporation’s (CMHC) 5% down payment program.
Here’s a link to the General Requirements for CMHC.
Please note that all amounts are approximate. Columns A & B are based on an interest rate of 6.75%. Rates do vary. If rates are higher, you would be eligible for a smaller mortgage. If rates are lower, your mortgage could be higher.
These calculations do not take into account mortgage insurance premiums for high-ratio mortgages.
We can keep you informed of current rates and refer you to a Mortgage Specialist who will help you decide the financing terms and options that are right for you so that you know what you can afford. Contact us today!