The Canadian Mortgage and Housing Corporation (CMHC) says housing costs shouldn’t exceed more than 32% of your gross monthly income—a figure called your Gross Debt Service (GDS) ratio. However, buying a house in a major city with 32% GDS is unrealistic, says mortgage broker Rob McLister. Take Toronto, where the average bungalow costs $568,000. A family with a $96,000 annual income would be priced out of the market. But by increasing their GDS to 38% that same home is now within their reach. In fact, a GDS of up to 39% can be reasonable, says McLister, provided the higher debt load is offset by other strengths like outstanding credit, good future earnings potential and sufficient emergency savings.
*Assumes a 3.39% 5-year fixed rate 25-year amortization mortgage, 0.75% property taxes, 10% down payment; includes heating costs.