If you’ve been thinking about making the jump into homeownership, the first question you must ask is can you afford it? While $500,000 may get you a four bedroom house and half an acre of land in the Atlantic provinces, here in Toronto you’re likely limited to the condo market. So whether we’re talking about the salary needed for a $500k mortgage or what is the required income for a 500K mortgage in Canada we are here to help answer your questions and make sure you really can afford that condo purchase.



The first step to starting your home buying journey is to get a mortgage pre-approval. This is where your mortgage lender will look at where you stand financially to help give you an idea of how much mortgage you qualify for and at what interest rate.


What they do is look at your income, your monthly expenses, what debt you may have, how much you have available for your down payment, as well as any other registered and non-registered savings you may have. They use this to calculate your debt-to-income ratios which helps them determine how much mortgage you can afford.


However, your mortgage pre-approval will generally tell you the maximum mortgage you can qualify for but it doesn’t guarantee that you’ll get that amount. We’ll elaborate on qualifying for a mortgage later on.




Calculating Your Gross Debt Service Ratio

To help you better understand the process, let’s have a closer look at how they calculate how much mortgage you can qualify for. First, they need to calculate your Gross Debt Service (GDS) Ratio. This is done by evaluating your total monthly housing expenses against your monthly income. Your housing costs include:


  • Mortgage payments
  • Property taxes (2021 rate is 0.611013%)
  • Heating expenses
  • Half of your condo fees (if applicable)

When you add up your monthly housing expenses they should not exceed 32% of your gross income. This is how you calculate your GDS Ratio:


Annual Income ÷ 12 = Monthly Income
Monthly Income x 0.32 = Maximum Gross Debt Service


If you’re wondering what is the monthly payment on a 500k mortgage use our Mortgage calculator to find out.

Use our Mortgage Calculator to determine what your monthly mortgage payments could be

Calculating Your Total Debt Service Ratio


The next step is to account for any debts you have. This includes things like:

  • student loans
  • lines of credit
  • car payments
  • credit card payments
  • child or spousal support payments

Whatever your total debt amount is, the amount should not exceed 40% of your gross income.  This is how you calculate your Debt Service Ratio:


Monthly Income x 0.4 = Total Debt Service




The other thing to be mindful of when calculating your mortgage affordability is the Stress Test. What you can perhaps afford and what you qualify for under the government’s Stress Test are different.


Under the Stress Test guidelines, homebuyers must qualify for a mortgage at a rate of 5.19% (recently dropped from 5.34% in July 2019) or 2% higher than the negotiated rate, whichever is larger. The point of the Stress Test is to ensure you’d still be able to afford your mortgage payments should interest rates rise.


When you use the Mortgage Affordability Calculator, take your own stress test by entering the stress test rate of 5.19%.




Given what we know above, let’s see how much income is required for a $500K home.

In this example, let’s suppose you are putting the minimum down payment of 5% or $25,000. Because you have less than 20% down you’ll need to pay CMHC insurance. In this case the CMHC insurance adds an extra $19,000 to your mortgage for a total mortgage of $494,000.


Inevitably, you will have to pass the stress test when applying for a mortgage with any major lender. So first, let’s see how much the required income for a 500K mortgage is while qualifying under the stress test.

Required Income for 500K Mortgage under the Stress Test


Let’s determine the Gross Debt Service (GDS) for a $500,000 condo using the mortgage stress test rate of 5.19% over 25 year amortization. Your household expenses break down like this:


  • Property tax $255/month ((500,000 x 0.0061101) ÷ 12)
  • Heating $60/month
  • Half condo fees $200/month
  • Mortgage payments $2,927/month
    TOTAL: $3,442

With your monthly household expenses amounting to $3,442 this means the required minimum income for a 500K mortgage under the Stress Test is $130,000 per year. This could also be two salaries of $65,000 per year.

$130,000 ÷ 12 = $10,833
$10,833 x 0.32 = $3,447

Expenses $3,442 < $3,447 GDS


Don’t forget about any debts, keeping in mind they should not exceed 40% of your monthly household income.

So while the above is how the bank will approach determining what you can afford, below is closer to the income one actually needs to afford a 500K mortgage.


What is the Required Income for a 500K Mortgage?


Using the same example above, let’s determine what the required income for a 500K mortgage is at a more typical rate of, say, 3.5%. All of your household expenses would be the same with the exception of your monthly mortgage payment which would drop to $2,466 for a total of $2,982 in monthly expenses.

So to answer your question, “How much do I need to make or what is the required income for a 500k mortgage?” In this scenario, the minimum income needed for that $500,000 condo is $113,000 or two salaries of $56,500 per year.

113,000 ÷ 12 = $9,417
$9,417 x 0.32 = $3,013

Expenses $2,982 < $3,013 GDS


Keep in mind, an income of $113,000 per year is the minimum salary needed to afford a $500K mortgage. If this is where you fall financially, you’ll want to look at condos for sale that are below this price range to ensure you aren’t over-extended.


There are other expenses to be mindful of when it comes to owning a home. You’ll also need to budget for closing costs and try to put some portion of your monthly income into an emergency fund.

Search the Latest Toronto Properties for Sale Under $500K



If you are able to increase your down payment to 20% you won’t have to pay mortgage default insurance (CMHC insurance) and your monthly payments will decrease allowing you to afford more. There are other ways to increase your down payment that we discuss in our Step-by-Step Guide to Saving for a Down Payment.


Ways you can increase your down payment:


  • Using the Home Buyers Plan, which allows first-time home buyers to loan themselves funds from their RRSPs
  • Using funds from your Tax-Free Savings Account
  • Getting a gifted down payment from the bank of Mom & Dad

Be sure to use our Mortgage Affordability Calculator along with the Gross Debt and Total Debt Service equations from above to help you with your budget. When you’re ready, book a call with us to discuss your unique financial situation so we can take you one step closer to homeownership!


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