How Big a Mortgage Can You Actually Afford?

Aisha and Tom got their pre-approval back on a Friday, and the number at the top of the letter made them both go quiet. It was huge — far more than they’d pictured spending, far more than felt comfortable. For a giddy weekend it reframed everything: suddenly the nicer neighbourhood was “in budget,” the bigger place was “approved.” Then Tom did the small, deflating thing of working out what the monthly payment on that number would actually be, and the giddiness evaporated. The bank was willing to lend them a sum that would leave almost nothing for the rest of their lives.

That gap — between what you’re approved for and what you can comfortably carry — is the most important thing to understand before you shop. A pre-approval is the bank telling you the maximum it will risk, calculated to the very edge of what their rules allow. It is not advice about what’s wise for you. The number is built to be the ceiling, and ceilings are not where you want to live. Treating the approval as a target rather than a limit is how good earners end up “house poor,” technically able to make the payment and unable to do anything else.

It helps to know how the bank gets to its number, because the same machinery shows you where your comfortable number sits. Lenders use debt-ratio rules — your housing costs capped at around 39% of gross income (the GDS ratio), total debts at about 44% (TDS). And they don’t qualify you at the rate you’ll actually pay; they apply a stress test, qualifying you at the greater of your contract rate plus 2% or a 5.25% benchmark. That stress test exists precisely because rates move, and it’s a clue worth stealing: if the bank pressure-tests you against higher rates, you should pressure-test yourself too.

Your comfortable maximum is the one that still leaves room after the mortgage — room to keep saving, to handle the maintenance that owning a home guarantees, and to absorb a payment increase at renewal without panic. In practice that usually lands meaningfully below the approval, often by aiming at a lower share of your income than the bank’s hard cap. The levers that shift the whole picture in your favour are a bigger down payment (less to borrow, less interest) and a shorter amortization (higher payments, but far less interest and faster freedom) — though never drain your emergency fund to make the down payment bigger.

Aisha and Tom did the un-fun but freeing thing: they decided on a number first, well under the approval, that left them breathing room at the stress-test rate, not just today’s rate. Then they went house-hunting against their number and ignored the bank’s. They lost a couple of bidding wars to people stretching to their ceilings. They also slept fine, kept funding their TFSAs, and weren’t rattled when renewal rates ticked up. They bought a home they could afford to actually live in — which, it turns out, is a different purchase than the one the bank pre-approved.

FAQ

Next weekend — once you know the size, the rate decision: Lock In or Go Variable? The Mortgage Rate Decision (link goes live Oct 17).