How do I calculate affordability for a
mortgage?
“How much mortgage can I afford in Milton?”
If you’re selling a home in Milton, ON, this question is the one buyers ask before they ever make an offer. Get it right and you price for the buyers who can actually buy. Get it wrong and your listing sits while your carrying costs pile up.
Quick hook: Why mortgage affordability matters for sellers
Buyers don’t pay list price—they pay what they can qualify for. That qualification is driven by mortgage affordability. As a seller, understanding how lenders calculate affordability tells you:
- Which buyer income brackets match your price
- Whether you should expect conditional offers (financing condition)
- How to set a strategic price to maximize offers and reduce days on market
This guide gives you the exact, practical formula lenders use in Canada, how to run the numbers for Milton buyers, and how to use that information to sell smarter.
The simple 4-step affordability formula (use this now)
Lenders boil affordability down to two ratios and a stress test. Do these four steps and you’ll know the real buyer pool for any price in Milton.
1) Calculate Gross Debt Service (GDS)
- GDS = (Mortgage payment + Property taxes + Heating costs + 50% of condo fees if applicable) / Gross monthly income
- Lenders prefer GDS ≤ 39% for conventional mortgages (some variation exists by lender)
2) Calculate Total Debt Service (TDS)
- TDS = (Mortgage payment + Property taxes + Heating costs + 50% of condo fees + other debt payments like car loans and credit cards) / Gross monthly income
- Lenders prefer TDS ≤ 44% (varies by lender and borrower profile)
3) Apply the Mortgage Stress Test (Qualifying Rate)
- Lenders don’t qualify at the contract rate only. They use a qualifying rate: the greater of the contract rate + 2.00% or the published benchmark (Bank of Canada 5-year or current regulator rate). This is the OSFI stress-test approach.
- That higher qualifying rate reduces the mortgage size a buyer can afford.
4) Convert mortgage size to price
- Mortgage amount = Payment formula using the qualifying rate and chosen amortization (e.g., 25 years)
- Max purchase price = Mortgage amount + Down payment
Use those steps to map buyer monthly income ranges to purchase price ranges.
Example: Run the numbers (real-world sample)
This example shows why price matters in Milton. Use it as a template for any property.
Assumptions (sample buyer):
- Gross household income: $110,000/year ($9,167/month)
- Down payment: 20%
- Contract mortgage rate offered: 5.00% (fixed)
- Qualifying rate used for the stress test: contract rate + 2% = 7.00% (example)
- Amortization: 25 years
- Annual property tax: $4,200 (Milton average varies by neighbourhood)
- Monthly heating/utility estimate: $150
- Condo fees: $0 (detached house example)
Step A — Convert taxes & heating to monthly: ($4,200 + $1,800)/12 = $500/month (we used $150 heating × 12 = $1,800)
Step B — What monthly housing payment keeps GDS at 39%?
- 39% of monthly income = 0.39 × $9,167 = $3,573/month
- Subtract taxes & heat: $3,573 − $500 = $3,073 available for mortgage payment
Step C — What mortgage principal does $3,073/month buy at 7.00% (qualifying rate) over 25 years?
- Use a mortgage formula or calculator. At 7.00% over 25 years, $3,073/month equals roughly a $450,000 mortgage (approximate—use an online calculator for exact)
Step D — Add down payment (20% of purchase price). If mortgage = $450,000 then purchase price = $450,000/0.80 = $562,500
Result: With these assumptions, a two-income household earning $110,000 could realistically qualify for roughly a $560k home, not $700k. That gap explains why some listings don’t hit market value—they’re priced above the real buyer pool.
Note: This is an illustrative example. Change income, down payment, fees, and the qualifying rate to see different buyer brackets.
Milton-specific inputs you must use
Local data changes the math. When you price or stage a home in Milton, use these local figures to build accurate affordability maps:
- Median home prices: Milton home prices are generally above the provincial average. Typical ranges (2023–2024) for single-family homes often fall between $800k–$1.2M depending on neighbourhood; condos are lower.
- Property taxes: Expect $3,000–$6,000/year for most Milton homes. Use the town tax rate for the exact lot.
- Condo fees: In Milton, condo fees commonly run $300–$700/month depending on building amenities.
- Buyer profile: Common buyers in Milton are commuting professionals, two-income families, and young professionals priced out of Toronto. Many rely on combined incomes and require clean credit.
Plug these local numbers into the 4-step formula to build realistic buyer segments for your specific listing.
Why the stress test kills some buyer offers (and what sellers should do)
Higher qualifying rates shrink loan amounts. For example, a buyer comfortable at a 5% contract rate can qualify for a much smaller mortgage at a 7% qualifying rate. That gap causes financing conditions, lowball offers, or offers that fall through.
What sellers should do:
- Price for the likely qualified buyer, not the emotional list price.
- Encourage buyers to get pre-approval at the qualifying rate, not a soft pre-qualification.
- Be ready to accept backup offers or choose shorter financing conditions.
How sellers convert affordability knowledge into strategy
1) Create a buyer-affordability grid for your price: show which household incomes map to your list price.
2) Adjust list price or incentives (closing credit, appliance allowance) to bring more buyers into range.
3) Time your sales: list when mortgage rates or buyer incomes are favorable in market cycles.
4) Vet offers by asking for lender pre-approval that shows qualifying rate calculations.
Example grid (quick):
- Price $550k → Likely buyer household income needed: $95k–$130k
- Price $750k → Likely buyer income needed: $140k–$180k
- Price $1.0M → Likely buyer income needed: $180k+
These estimates depend on down payment, interest rates, and debts. Use the 4-step formula for precise numbers.
Tools sellers should use right now
- Mortgage calculators that allow you to set a qualifying rate (contract rate + 2% or chosen benchmark)
- Your local Realtor’s buyer profiles (ask for a buyer affordability map)
- A checklist for offers that ensures pre-approvals match the stress-test rate
Closing the loop: Seller wins versus buyer affordability
When you price to the right affordability band, you sell faster and often get stronger offers. The faster you sell, the lower your carrying costs. That boosts your net proceeds and reduces stress.
If you overprice, you rely on buyer concessions or risk deals falling apart under financing conditions.
Call to action (do this now)
If you’re selling in Milton and want a buyer-affordability map for your address, email Tony Sousa at tony@sousasells.ca or call 416-477-2620. Tony will provide a custom affordability grid showing the realistic buyer pools for your price, with exact numbers using current rates, property taxes, and condo fees.
Visit https://www.sousasells.ca for listings and resources.
FAQ — Mortgage affordability & financing in Milton, ON
Q: What is the single fastest way to know how much a buyer can afford?
A: Get a lender pre-approval that shows the qualifying rate used. Pre-approval with the stress-test rate is the only reliable number.
Q: What are typical GDS and TDS limits lenders use?
A: Generally GDS ≤ 39% and TDS ≤ 44% for conventional loans. Some lenders accept higher ratios for strong profiles—always confirm with the lender.
Q: How does the mortgage stress test work?
A: Lenders qualify buyers at a higher rate than the contract rate—the qualifying rate is the greater of the contract rate + 2% or the posted benchmark rate. This reduces the size of the mortgage a buyer can borrow.
Q: How do property taxes and condo fees affect affordability?
A: They reduce the monthly amount available for mortgage payment under the GDS calculation. High taxes or condo fees can move a buyer out of your price range.
Q: Should I expect conditional offers because of financing in Milton’s market?
A: Yes. Financing conditions are common, especially when interest rates are rising. Ask for firm pre-approvals and consider shorter financing condition timelines.
Q: How can sellers make their property more affordable to buyers without lowering price?
A: Offer closing credits, include appliances, pay a portion of closing costs, or provide flexible closing dates. These move effective buyer-costs without changing list price.
Q: How do I find out the current benchmark or qualifying rate?
A: Lenders and bank websites post the current benchmark and lenders will confirm the stress-test method. Your mortgage broker or Tony can provide the current qualifying rate for Milton buyers.
Q: I’m a seller—can you map buyer incomes to my list price?
A: Yes. Contact Tony Sousa at tony@sousasells.ca or 416-477-2620. He provides tailored affordability maps for Milton listings.
If you want a custom affordability report for your Milton home—exact numbers based on current rates, taxes, and local market data—reach out to Tony and get the real buyer pool before you list. The right price with the right buyers wins every time.
