What's the most expensive home you could afford?

Use this tool to see the most expensive home you could afford. The numbers are based on what banks are typically willing to lend. If you're buying with a partner, combine your in‐ come, expenses and debts.

How we got the num‐ bers

This tool uses something known as the "stress test." The test is designed to en‐ sure homeowners don't take on too much debt when sign‐ ing on to a mortgage. Canada's Office of the Super‐ intendent of Financial Institu‐ tions decides the interest rates used in a stress test. Currently, they're set at the interest rate the homebuyer was approved for plus two percentage points, or 5.25 per cent, whichever is higher.

Depending on the debt ra‐ tios of the homebuyer, lenders might approve or re‐ ject a mortgage request. The gross debt ratio (GDS) con‐ siders the home purchase's monthly carrying costs (mort‐ gage, heating, taxes, etc.) di‐ vided by the homebuyer's monthly income. The total debt ratio (TDS) is the same plus any additional monthly debt payments the home‐ buyer may have (credit cards, student loans and car pay‐ ments).

According to the Financial Consumer Agency of Canada, mortgage requests are likely to be rejected when the GDS is 32 per cent or more or when the TDS is 40 per cent or more. Different institu‐ tions use different thresh‐ olds.

If the user does not pro‐ vide heating costs, the de‐ fault amount used in the cal‐ culations is $175 per month. If the user does not provide a property tax monthly pay‐ ment, the default amount is 1.5 per cent of the purchase price divided by 12. These as‐ sumptions match the ones used by the Royal Bank of Canada in their calculations.

You can find the formulas and calculations used here.