When you’re looking to buy a home, or refinance, you may overlook how seemingly ordinary commitments such as a boat, truck or snowmobile play a role in your overall borrowing ability. Many clients believe they can comfortably take on a mortgage when they’re already keeping up with rent and their usual bills, but lenders examine more than just income, down-payment and existing rent. They also assess every recurring debt you hold before approving a mortgage.
Here’s how these additional obligations can impact what you qualify for.
Why total debt matters
Lenders broadly use two key ratios: the Gross Debt Service (GDS) and the Total Debt Service (TDS).
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GDS considers your housing-cost share of income (mortgage payment, taxes, heating, etc.). (NerdWallet)
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TDS goes further to include all other debt payments — car loans, lines of credit, credit-cards, student debt and the like. (Canada)
In Canada, the general thresholds for what many lenders will accept are around 39% for GDS and 44% for TDS under insured mortgage criteria. (Canada Mortgage and Housing Corporation)
Even if you’re under those limits, large non-housing debts reduce the amount you may borrow because less of your income remains to service the mortgage.
Car loans, recreational vehicles and other finance
Take for example a monthly payment of $600 for a truck or financing for an ATV or snowmobile. While you may feel this is manageable, that debt is factored into your total obligations and can significantly reduce the size of mortgage you may secure.
Similarly, if you’ve financed a boat or personal watercraft, that payment is also added to your qualifying debt load and reduces your borrowing capacity.
Student loans, credit cards and lines of credit
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Student debt: Even if payments are deferred, lenders often operate with a “notional” payment amount—for instance, roughly 1% of the outstanding student-loan balance per month may be added into your debt-load calculation.
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Credit cards/LOCs: Lenders will look at either the actual minimum payment shown or apply a standard percentage of the credit-limit (for example, 3%) as a proxy for monthly payment. (Servus Credit Union)
Reducing these balances can improve your debt-ratios and therefore your borrowing power.
Steps to strengthen your affordability
Here are some actions you and your clients in the Corner Brook region may take:
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Lower outstanding balances: Paying down credit card and line-of-credit debt lowers your monthly obligations and improves your debt-ratios.
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Avoid new debt: Taking on a new vehicle or recreational-equipment loan right before applying for a mortgage can cut your qualifying amount significantly.
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Consolidate where possible: If you carry multiple debts, an amortizing consolidation-loan might reduce your monthly payment and free up capacity.
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Have a broker review early: I can run quick scenario analyses—“What if I paid off the car loan?” or “What if I consolidated the LOC?”—to show you how different moves affect what you might borrow.
If you’re buying or refinancing soon…
In the Corner Brook & west-coast Newfoundland area, whether you’re looking at your first home, a cottage, or refinancing for renewal — let’s connect first. I’d be glad to review all current debts, factor in your vehicle/boat/snowmobile financing, and work out your most appropriate mortgage strategies.
If you’re ready, send me a message or call today and we’ll set up a no-obligation chat to explore your goals and build a plan for your next move.