All the Numbers

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Would a lender write the mortgage?

Before lending, a lender checks that the household could carry the payments even if rates were higher. The planner runs the same published screen and reports whether the home passes. It is a screen, not an approval: a pass does not mean a lender will say yes.

The rules

  • Stress-test rate. The payment is worked out at the greater of the contract rate plus 2 percentage points or 5.25%. It applies to insured and uninsured mortgages alike.
  • GDS (gross debt service): the mortgage payment, property tax, heat and half of any condominium fee, as a share of gross income. The insured limit is 39%.
  • TDS (total debt service): everything in GDS plus other debt payments, such as loans and credit-card minimums. The insured limit is 44%.
  • Heat is counted at $125 a month. CMHC asks for an actual figure or a reasonable estimate; $125 is a lender convention, not a rule.
  • Rent from a suite. For an owner-occupied two-unit home, CMHC will count up to 100% of the suite's gross rent as income. Conventional lenders often count 50% to 80%.
  • The mortgage payment is worked out on the loan including any insurance premium, over the amortization requested, using the semi-annual compounding convention.

What the engine does

  • Computes the stress-test payment, then both ratios, and passes the home only if each is at or under its limit.
  • Counts gross income from the planner's income entered for today, for both people in a couple, plus 100% of suite rent when a suite is planned. It does not use the plan's income in the year of purchase, so a raise or a job change before the purchase date does not change the result.
  • Counts monthly debt payments from the debts entered, and property tax from the home's property tax rate.
  • Does not re-test qualification after the purchase. A lender tests once, when it writes the loan; it does not ask again if income later falls, and neither does the plan. A plan that later runs short of cash is handled by borrowing, not by this test.

What it deliberately does not

  • Credit score, down-payment source checks and each lender's own overlays. A pass is a published-rules screen, not a lender approval.
  • Condominium fees; the planner enters none for this test.
  • Lenders that apply different ratio limits to uninsured mortgages. The limits used are the insured ones.
  • The federal secondary-suite loan program, which was announced and then cancelled before it opened.

Connected to

  • How a mortgage payment is worked out · A fixed-rate Canadian mortgage compounds its interest twice a year, not monthly, so the monthly payment comes from a rate slightly lower than the quoted rate divided by twelve. The default rate is 4.27%, and the rate stays fixed for the whole amortization.
  • Mortgage default insurance · A buyer putting down less than 20% must buy mortgage default insurance from CMHC or a competitor. The premium is 2.80%, 3.10% or 4.00% of the loan depending on the down payment, is added to the mortgage, and carries 8% Ontario sales tax paid in cash at closing.
  • Rent, and when it stops · Rent is its own line in the plan rather than part of living expenses, and it stops the month your first home closes — because a household that has bought is not paying both. Give it an end date if you would keep renting past that.
  • The Home Buyers' Plan · Up to $60,000 out of an RRSP, untaxed, for a first home — but it is a loan to yourself, repaid over fifteen years, and a missed repayment is taxed as income that year.
  • When the plan runs short of cash · When a month needs more money than the plan has, it draws savings in a set order, then borrows on a home equity line at 5.13% and an unsecured line at 8.38%, as far as a lender would lend. When no lender would lend more, the projection stops.

Sources