Are you considering taking out an $800,000 mortgage to buy a home in Canada? If so, consider your income and the debt to see if you can afford it.
To illustrate how much an $800,000 mortgage may cost you, let’s assume the following:
- 10% down payment ($80,000)
- 5-year closed mortgage
- 3.00% interest rate
- Mortgage Default Insurance ($22,320)
Based on the above figures, your total mortgage amount would be $742,320 to buy an $800,000 home. You’ll have to repay that amount plus interest by the end of your amortization period.
Your payment frequency influences how much you’ll pay over the life of the loan and your regular mortgage payments.
- Read: Variable of Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising
The following chart illustrates how different amortization periods and payment frequencies can impact your mortgage payments (assuming a 3.0% interest rate and 5-year term):
|Payment Frequency||Amortization Period||Mortgage Payment|
The shorter amortization period (15 years) results in higher mortgage payments but less interest overall.
The interest rate you’re charged can significantly impact your overall loan amount and payments. The lower your rate, the less expensive your mortgage will be. For example (using the same $742,320 mortgage as above):
|Interest Rate||Interest Over 25-Year Amortization||Interest Cost Over 5-Year Term||Monthly Payment|
Factors Considered in Calculating a Mortgage in Canada
The following factors are included when calculating mortgage costs:
- Mortgage amount. The amount you borrow is equal to the price of the home minus the down payment.
- Mortgage rate. The percentage a lender will charge for the loan.
- Amortization period. The length of time it takes to repay the mortgage in full.
- Payment frequency. How often payments will be made to repay the loan amount, plus interest and other costs.
What Are the Closing Costs For an $800,000 Mortgage?
When you buy a home, you’ll need to cover a handful of costs associated with the closing process. Closing costs typically range between 2% to 5% of the purchase price of the home and include any of the following:
- Lawyer fees
- Land transfer taxes
- Appraisal fee
- Home inspection fee
- Title insurance
- Property taxes
- CMHC mortgage insurance (if not rolled into your mortgage payments)
What Should My Income Be For an $800,000 Mortgage?
Many factors determine your ability to secure an $800,000 mortgage. To estimate your mortgage affordability, you can calculate both your Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio.
- GDS refers to your monthly housing costs. The average Canadian has a 32% GDS.
- TDS refers to your total debt load (including housing costs). The average Canadian has a 40% TDS.
Most lenders on the other hand typically look for a maximum GDS limit of 39% and a maximum TDS limit of 44%.
If you’re looking to take out an $800,000 mortgage, crunch the numbers first. Take into account your income and debts before house hunting to ensure you can afford your mortgage payments.