Oh, Toronto housing.
Up until the past few years, hopeful homebuyers in Toronto would often start their housing journey by scooping up a starter home. Oftentimes, they could obtain a single-detached home with a few bedrooms and a spacious backyard.
But then, because of demand along with a host of other reasons that everyone continues to be trying to suss out, detached home prices increased to some realm that's wholly unaffordable for many. The typical house in Toronto now sits slightly north of $1 million.
So, are your dreams of owning your house over? Well, it depends how much you make.
Below, we break up exactly what salary you have to collect to buy a $1 million house in the city.
Home price: $1,000,000
Down payment: $200,000, or 20% (in Canada, homebuyers are required to pay a minimum 20% deposit for homes worth $1,000,000 or more)
Mortgage loan protection insurance: $0 (whenever you pay a payment in advance of 20% or more, you do not have to purchase mortgage loan insurance from the Canada Mortgage and Housing Corporation)
Amortization period (the maximum amount of time your lender provides you with to pay off your loan): 30 years
Payment frequency: Monthly
Keep in your mind that our calculations do not take maintenance fees into account, which is a cost you will need to take on if you purchase a flat.
It's also important to know that underneath the new B-20 rules, lenders must now stress test all buyers to make sure they can afford to pay their mortgages if rates of interest rise (those renewing just do a stress test if they change lenders). The stress test requires you to definitely show you are designed for rates in the five-year Bank of Canada benchmark rate (5.14%) or two percentage points above the rate you qualified for (whichever one is higher).
Now that that's taken care of, let's break down what you need to make to afford that $1 million home.
If you decide to go having a fixed-rate mortgage
When you get a fixed-rate mortgage, your interest rate around the mortgage will stay exactly the same throughout the length of each payment period – which, in this case, spans five years.
Now, in Canada, on insured mortgages, you are able to only obtain a 25-year amortization period (basically the length you spend off your mortgage). However, because you need to pay 20% on a home worth $1 million or even more, that permits you to stretch your amortization to 30 years.
Based on that, we've develop the amount below using the LowestRates.ca mortgage calculator.
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Mortgage rate: 3.03%
Property taxes: $6,879.73/year, or $573.31/month (we used the town of Toronto's property tax calculator)
Total: $4,051.31/month, or $48,615.72 annually
When you apply for a mortgage, most brokers will provide you with a home loan that caps your debt-service ratio for that mortgage at 39% of your income. Plus, you will be stress tested at a higher rate of 5.14% to make sure you can afford your mortgage.
That means you need to prove you can afford a mortgage, plus the payments above, of $5,010.31. Based on the 39% debt service ratio, you have to make at least $154,163.38 before taxes annually to invest in purchasing a $1,000,000 home having a fixed-rate mortgage.
Income needed: $154,163.38 before taxes
Monthly payment when you qualify: $4,051.31
If you go having a variable-rate mortgage
A variable-rate mortgage moves with market rates of interest. This means that the interest rate you'll be paying in your mortgage will fluctuate depending on how the marketplace moves – you can either end up paying under you'd having a fixed-rate mortgage. Or you might wind up paying more.
Mortgage rate: 2.20%
Property taxes: $6,879.73/year, or $573.31/month
Total: $3,707.31/month, or $44,487.72 annually
If you employ the 5.14% stress test, with different 30-year amortization, you will need to make at least $154,163.38 before taxes to invest in a $1,000,000 home when you get a variable-rate mortgage.
Income needed: $154,163.38 before taxes
Monthly payment when you qualify: $3,707.31
In case you missed all that, you have to make $154,163.38 right now to qualify for a mortgage on the $1-million home.
The median income for a family in Toronto, statistically Canada, is $78,280. So you essentially have to make double that to qualify for a mortgage that may get you the typical house in the city.