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While your mortgage payment makes up the largest chunk of your ongoing housing costs, it's not the only cost. Taking stock of all your income and expenses before you dive into home ownership can help you spend within your comfort zone.

In Canada, there are policies and guidelines in place to help home buyers stay within their comfort zone financially.

One way mortgage lenders help ensure buyers don’t get in over their heads is by looking carefully at income and current debts when determining the size of the mortgage.

1. Income, debt and expenses

Typically, lenders look at two main comparisons as ratios to see if a potential buyer can afford the mortgage.

  • The first compares your income to your mortgage expenses (Gross Debt Service (GDS)). As a rule of thumb, “No more than 30% to 32% of your gross annual income should go to ‘mortgage expenses.'” This includes principal, interest, heating costs and property taxes (plus fees for condominium maintenance).
  • The second compares your gross annual income to your existing debt — house, credit cards, personal loans and car loans (Total Debt Service (TDS)). Depending on the lender, your total debt payments shouldn’t exceed 37% to 40% of your gross annual income.


2. Getting your numbers in shape

If you’re falling outside the ratio benchmarks, don’t lose hope. Now is the time to review your budget, debt, and other expenses so that you can comfortably afford your new home. Here are some options:

  • Consider reducing any of your lifestyle expenses to improve your cash flow. Is there a way you can bring down any outstanding debt?
  • Consider whether you have any short-term expenses that will be going away, such as a car payment, student loan, or childcare costs.
  • Consider looking at lower-priced homes that still meet your needs. A lower-priced home may give you a bit more breathing room in day-to-day life

While these ratios and pre-qualification amounts can help direct you in terms of what you could afford, it’s important to have an understanding of your total home ownership costs in order to keep you from over-extending yourself.

3. Understanding carrying cost

As you plan for home ownership, it’s important to understand any other ongoing costs (the “carrying cost”) you will need to cover.

The checklist below can help you calculate what those ongoing costs might look like. While you may not know all these costs are now, just knowing some of the most common expenses can help you determine how much “house” you can afford to purchase and ultimately carry.

While you are in the early stage of your home buying journey, it is a great time to research and work through each of the fields in the carrying cost table. Online calculators are also a great way to get a realistic overview of your total expenses.

Tip: You may want to consider adding additional expenses like grocery bills, transportation, or internet/Wi-Fi — and rank them in order of necessity.


If you’re reading about GDS ratios and calculating how much home you could afford*, you must be serious about buying a house. If you feel the timing is right, consider starting a mortgage pre-approval.

And remember, this is a journey, and RBC is here to help, every step of the way.

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