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There are many ways to determine how big a mortgage you can afford. However, there are some guidelines Canadian lenders use when evaluating your eligibility for a mortgage.

Your down payment: How much you are able to put down upfront will inevitably impact how big a mortgage you can afford. This is because there are minimum requirements for a down payment in Canada, depending on the cost of the home.

On a home that’s $500,000 or less, you’re required to put down at least 5% upfront. On a home that’s between $500,000 and $1.5 million, you’re required to put down 5% of the first $500,000, and 10% of the rest of the principal. On a $1.5 million home, you’re required to put down at least 20%.

Down payments that amount to less than 20% of a property’s value are called high ratio mortgages and homebuyers need to purchase insurance to guarantee their mortgage. The price of the insurance premium is added to the monthly mortgage payment. Down payments that are at least 20% or more are called conventional mortgages and not require insurance.

Having a down payment that exceeds 20% will help you pay off your loan sooner and save you money in the long run. However, interest rates on high-ratio mortgages tend to be lower than the rates on conventional mortgages. That’s because the added insurance reduces the risk of the bank losing its investment.

• Gross debt service (GDS) ratio: Your GDS ratio refers to the amount of your monthly income you’ll spend on housing costs. The Financial Consumer Agency of Canada uses a standard GDS ratio of 39% as a guideline, though every lender will be a little different. The lower your GDS ratio, the larger the mortgage you may be approved for.
• Total debt service (TDS) ratio: Your TDS ratio refers to the total portion of your income that goes to paying debts and obligations each month. The Canadian Mortgage and Housing Corporation advises maintaining a TDS ratio of less than 42%. Much like your GDS ratio, the lower your TDS ratio, the larger the mortgage you may be approved for.

In Canada, there are a number of different ways to structure a mortgage.

Mortgages can vary depending on the term length, rate type and whether the mortgage is open or closed. Regardless of whether you have a fixed-closed, fixed-open, variable-closed or variable-open mortgage, term lengths can range from anywhere between one year and 10 years. The most common term length in Canada is five years.

• Fixed-closed mortgage: A fixed-closed mortgage is a mortgage contract where the rate is fixed and the homeowners are not allowed to pay off their mortgage loan early without incurring a penalty.
• Fixed-open mortgage: A fixed-open mortgage is a contract where the rate is fixed, but the homeowners are allowed to pay off their mortgage early without incurring a fee.
• Variable-closed mortgage: A variable closed mortgage refers to a mortgage contract where the homeowners have a variable mortgage rate but can’t pay off their mortgage early without incurring a prepayment penalty. The interest rate with this type of mortgage rate will fluctuate depending on market conditions.
• Variable-open mortgage: Lastly, a variable open mortgage allows homeowners to pay off their mortgage early without incurring a prepayment penalty. However, the amount that goes toward principal and interest from their monthly payment will fluctuate with market conditions.

Mortgage term: A mortgage term refers to the length of time your mortgage contract is in effect before it is eligible for renewal. Mortgage terms in Canada can range anywhere from one to 10 years, but the most common mortgage term is five years.

Amortization period: The amortization period is the amount of time it will take you to pay off your entire mortgage. In Canada, the maximum amortization period is 35 years. But, if your down payment was less than 20% and you were required to purchase mortgage insurance from the Canadian Mortgage Housing Corporation, then your maximum amortization period is 25 years. First-time homebuyers purchasing new builds will be allowed up to 30-year mortgages.

The short answer is yes. You can be pre-approved for a mortgage when a lender looks at your finances and informs you of the amount they will lend you and what interest rate they’re willing to offer you. Getting pre-approved for a mortgage can accelerate the process of moving into your new home when you find it. This is because if you’re pre-approved, the seller might choose your bid over another offer.

You’ll want to shop around for the best pre-approval rate you can find. While this can be a challenging and trying process, comparison sites like LowestRates.ca can make it a whole lot easier. Fill out our form to see what brokers are willing to offer you, and a broker will be in touch with you shortly to secure the rate you select on the site.

Payment flexibility needs to be negotiated with your lender at the outset. While some lenders will allow you to change the frequency and amount of your mortgage payments, others will charge fees for these adjustments.

This is why it’s important to think about pre-payment privileges when you’re negotiating your mortgage contract. Otherwise, you might find yourself faced with additional fees if you’d like to make these changes down the line.

In addition, you’ll also likely be charged a fee if you choose to break your mortgage. This may happen if you choose to break your mortgage and renew your contract at a lower rate, or if you move before your mortgage has been paid. You can avoid paying a prepayment penalty by looking into securing portability as a feature of your mortgage contract early on.

There several different places Canadians can turn to get a mortgage. First, it’s important to identify the difference between a mortgage lender and a mortgage broker.

A mortgage lender lends money to prospective homebuyers directly. They can include a wide range of companies, including banks, trust companies, loan companies, credit unions, caisses populaires and mortgage companies.

A mortgage broker, on the other hand, will not lend money directly to you. Mortgage brokers arrange your transaction by seeking out a lender for you.

While some lenders will only work directly with prospective homeowners, other mortgage products are only offered through mortgage brokers. Since mortgage brokers have access to several lenders at once, they might be able to provide you with a broader range of prospective offers.

LowestRates.ca compares banks, brokers and other lenders all at the same time so you don’t have to go through the trouble. And ultimately, we get you the best mortgage rate from one of our trusted partners. Fill out a form to get started.

Given how hot Canada's housing market is, we can’t overemphasize the importance of mortgage rate comparison.