The first number most buyers want is the price they can afford. Lenders get to that number with a formula, and once you see the formula you can work out your own range before you ever talk to a bank, and spot what is holding it down.
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548 490 4577What is the mortgage stress test?
Federally regulated lenders have to qualify you at the higher of two rates: 5.25%, or the rate you are actually offered plus two percentage points. If your lender offers 4.5%, you are qualified as though it were 6.5%. You still pay 4.5%. The test is there to make sure you could absorb a higher payment at renewal.
Which two ratios do lenders check?
Gross debt service (GDS) is your housing cost as a share of your gross income: the mortgage payment at the stress-test rate, property tax, heat, and half of any condo fee. For an insured mortgage, meaning less than 20% down, the limit is generally 39%. Total debt service (TDS) adds every other debt payment, such as car loans, student loans and credit card minimums, and the limit is generally 44%. Some lenders are stricter.
Worked examples
| Household income | Other debts | Amortization | Approximate maximum mortgage |
|---|---|---|---|
| $90,000 | None | 25 years | $362,000 |
| $90,000 | None | 30 years | $387,000 |
| $90,000 | $500 a month car payment | 30 years | $367,000 |
| $120,000 | None | 25 years | $508,000 |
| $120,000 | None | 30 years | $543,000 |
Assumptions: a 6.5% stress-test rate (a 4.5% offered rate plus two points), $400 a month property tax, $100 a month heat, no condo fee, and the mortgage amount before any default insurance premium is added. Your lender's figures will differ. This is the shape of the math, not a pre-approval.
Look at the car payment. On a $90,000 income, $500 a month of other debt removes about $20,000 of borrowing power in the 30-year example. Paying off a small loan before you apply can do more for your budget than saving another few thousand dollars.
Who gets a 30-year amortization?
Since December 15, 2024, first-time buyers and anyone buying a newly built home can get a 30-year amortization on an insured mortgage. Other buyers with less than 20% down are limited to 25 years. The longer amortization lowers the payment and raises what you qualify for, but you pay more interest over the life of the mortgage.
What does that buy in London and St. Thomas?
LSTAR's August 2026 benchmarks were $430,400 for a townhouse across its whole area, $431,900 for a typical home in London East, $499,700 in St. Thomas and $552,600 in London South. With 5% down and the insurance premium added, the $90,000 household in the 30-year example tops out at about $390,000. That's below the townhouse benchmark, so it means homes priced under the benchmark, a larger down payment, or a second income. The $120,000 household with 10% down reaches about $585,000, above the London South benchmark.
Approval is a ceiling, not a target. Lenders don't count daycare, groceries, gas or retirement savings. Build your own monthly budget at your real rate and decide what payment you are comfortable with before you decide what price to look at.
Frequently asked questions
Does the stress test apply if I put 20% down?
Yes, at federally regulated lenders it applies to uninsured mortgages too. Some provincially regulated credit unions use different rules, which is one reason a mortgage broker can find more room for some buyers.
Do lenders count bonus or overtime income?
Usually only if it is consistent. Most lenders want a two-year history of variable income, and self-employed buyers generally need two years of tax returns and Notices of Assessment.
Is a pre-approval the same as an approval?
No. A pre-approval checks your income, debts and credit and holds a rate. Final approval comes after you have an accepted offer and the lender is satisfied with the property itself, including its appraised value.
