How Much Can You Borrow With A Residential Mortgage In Toronto?

 Buying a home in Toronto is a major investment. Many homebuyers apply for mortgages depending on their requirements and preferences. Different lenders offer different residential deals based on their eligibility criteria.

If you are planning to buy a home on a mortgage, you should calculate your residential mortgage borrowing capacity. This helps you plan your purchase, select the right property, and manage your finances.

Let us discuss the most important factors that determine your residential mortgage eligibility and the amount you can borrow to buy a house in Toronto:

Loan-to-value Ratio

Loan-to-value (LTV) forms the core of a person’s borrowing power. It is the ratio of the amount you can borrow to the market value of the property you want to buy. It is expressed as a percentage of the property’s value that you can borrow.

For example, if you want a residential mortgage in Toronto and your LTV is 90%, it means that the loan you receive will amount to 90% of the property’s market value.

You might want to have a look at these LTV caps in Canada before buying a residential property on a mortgage:

• Borrowers can get up to 95% LTV with 5% down payment for properties valued under $500,000.

• Properties valued between $500,000 and $1.5 million carry an LTV of 90% to 95%. The down payment here is 5% on the first $500,000 and 10% on the remaining amount.

• Properties valued over $1.5 million carry a maximum LTV of 80% with a 20% down payment.

Your LTV and the concerned property’s value play a major role in determining your residential mortgage borrowing capacity.

Private mortgage lenders generally offer a lower LTV due to high risk and a lack of insurance. For example, lenders associated with New Haven Mortgage offer a maximum LTV of 78% for both first and second mortgages.

High-ratio Vs. Conventional Mortgage

High-ratio mortgages, as the name suggests, are mortgages with LTVs over 80%. The maximum LTV here is 95% with the following considerations:

• The mortgages have a 25-year amortization cap, unless you are a first-time buyer or want to buy a new build property. In such cases, the amortization cap is 30 years.

• The maximum purchase price is $1.5 million.

Conventional mortgages are mortgages with LTVs equal to or lower than 80%. No insurance or price cap is needed here. The amortization limit lies in the hands of the mortgage lenders.

Debt-service Ratios

If you are looking for a residential mortgage in Toronto, lenders may also use debt-service ratios to determine how much you can borrow. Your debt-service ratio determines your ability to repay your mortgage based on your income.

Lenders may focus on gross debt-service (GDS) or total debt-service (TDS) ratio based on their lending criteria.

GDS takes into consideration your mortgage payments, taxes, and heating costs. It is capped at around 35% to 39% of your gross pre-tax income.

TDS considers all your debts to determine your ability to repay your mortgage. It is capped at around 44% of your gross pre-tax income.

Amortization Rules

Your amortization period is the time you are likely to take to repay your mortgage. Many residential mortgage lenders use it as a key factor to determine how much you can borrow.

The maximum amortization period of most insured and high LTV mortgages is often 25 years. First-time homebuyers or buyers of new build properties may get an extension of up to 30 years.

The maximum amortization period of uninsured and low LTV mortgages is generally 30 years. A few private mortgage lenders may go even farther with exclusive deals.

However, every residential mortgage borrower should understand that longer amortization periods lower monthly payments but increase the overall interest.

Credit Score

Especially if you are looking for a mortgage from conventional lenders like banks and credit agencies, your credit score will play an important role in determining your residential mortgage borrowing capacity. How creditworthy you are gives lenders an idea about your likelihood of repaying the mortgage on time.

Different mortgage lenders have minimum credit requirements for different deals. For example, mortgages with LTVs lower than 65% require a minimum credit score of 680. Deals with LTVs between 65% and 80% often require you to score at least 720.

If you do not want to stay completely dependent on your credit score to get a residential mortgage in Toronto, you can approach private lenders. These lenders offer flexible deals with lenient credit requirements.

Income And Employment

Mortgage lenders also always prefer working with borrowers with a stable income and fruitful employment. This gives them the assurance of receiving their funds on time.

A stable income and employment history are likely to increase your borrowing capacity. Lenders also check the source of your down payment. It is always advisable to make the payment from your savings account, sale proceeds, RRSP withdrawals, etc. Never use borrowed funds to pay your down payment, as it increases your mortgage lender’s risk.

The Final Word

There is no single factor determining your capacity to borrow with a residential mortgage in Toronto. How much you can borrow often depends on LTV, credit score, income, employment, amortization, and many other factors. Ensure that you meet all the eligibility criteria before approaching a residential mortgage lender.

If you fail to meet the conventional lending criteria, especially the ones that focus on your credit score and employment, you can approach private lenders. These lenders focus more on the property’s value and its marketability. While the LTVs here are lower and interest rates are higher, you get flexible mortgage deals and faster approvals than taking the conventional route.