The CMCH Ratio Calculator is a tool used to assess an individual’s ability to qualify for a mortgage insured by the Canada Mortgage and Housing Corporation (CMHC). It helps determine whether the borrower is financially capable of repaying the loan based on their income and existing debt obligations.
Two key ratios are used to measure this capability: the Gross Debt Service (GDS) Ratio and the Total Debt Service (TDS) Ratio. Both ratios are essential in determining a borrower’s mortgage affordability and whether they meet CMHC’s criteria for mortgage insurance.
The CMCH Ratio Calculator evaluates these ratios to ensure the borrower’s debt-to-income ratios remain within CMHC’s approved thresholds. These ratios are vital for ensuring that borrowers don’t become overwhelmed by their financial obligations, which could lead to mortgage default.
Formula of CMCH Ratio Calculator
To understand how the CMCH Ratio Calculator works, let’s look at the formulas used for calculating the two key ratios:
1. Gross Debt Service (GDS) Ratio
The GDS Ratio measures the percentage of your gross monthly income that goes towards housing costs. It includes the following components:
- Mortgage principal and interest payments
- Property taxes
- Heating costs
- 50% of condominium fees (if applicable)
The GDS ratio should not exceed 39% of your gross monthly income.
Formula:
GDS Ratio = (Mortgage Payment + Property Taxes + Heating Costs + 50% of Condo Fees) / Gross Monthly Income
2. Total Debt Service (TDS) Ratio
The TDS Ratio measures the percentage of your gross monthly income that goes towards all debt obligations, including housing costs and other debts like car loans or credit card payments. This ratio is a broader measure of a borrower’s financial obligations.
The TDS ratio should not exceed 44% of your gross monthly income.
Formula:
TDS Ratio = (Mortgage Payment + Property Taxes + Heating Costs + 50% of Condo Fees + Other Debt Payments) / Gross Monthly Income
General Terms for Understanding CMCH Ratios
To help you better understand the terms related to the CMCH Ratio Calculator, here is a table with commonly searched terms and conversion factors. This will help you better understand your calculations and make informed decisions about your mortgage application:
| Term | Definition |
|---|---|
| Gross Monthly Income | The total income before taxes and deductions |
| Mortgage Payment | The monthly amount paid toward the mortgage |
| Property Taxes | Annual taxes on the property, divided by 12 for monthly amount |
| Heating Costs | Monthly cost for heating the home |
| Condo Fees | Fees for condominium upkeep, 50% included in GDS/TDS |
| Other Debt Payments | Payments for other debts like credit cards, loans |
| Molar Mass | Weight of one mole of a substance (g/mol) |
This table clarifies terms you’ll come across while using the CMCH Ratio Calculator and helps you understand how each component fits into your monthly obligations.
Example of CMCH Ratio Calculator
Let’s work through an example of how to use the CMCH Ratio Calculator. Suppose you are applying for a mortgage, and the following details apply:
- Gross Monthly Income: $6,000
- Mortgage Payment: $1,500
- Property Taxes: $200 per month
- Heating Costs: $100 per month
- Condo Fees: $150 per month
- Other Debt Payments: $400 per month
Step 1: Calculate the GDS Ratio
Using the formula:
GDS Ratio = (Mortgage Payment + Property Taxes + Heating Costs + 50% of Condo Fees) / Gross Monthly Income
Substitute the values:
GDS Ratio = ($1,500 + $200 + $100 + 50% of $150) / $6,000
GDS Ratio = $1,875 / $6,000 = 0.3125 or 31.25%
This is within the acceptable limit of 39%.
Step 2: Calculate the TDS Ratio
Using the formula:
TDS Ratio = (Mortgage Payment + Property Taxes + Heating Costs + 50% of Condo Fees + Other Debt Payments) / Gross Monthly Income
Substitute the values:
TDS Ratio = ($1,500 + $200 + $100 + $75 + $400) / $6,000
TDS Ratio = $2,275 / $6,000 = 0.3792 or 37.92%
This is within the acceptable limit of 44%.
Most Common FAQs
To qualify for a mortgage with CMHC insurance, your GDS ratio should be under 39%, and your TDS ratio should be under 44%. These limits ensure that your debt load is manageable relative to your income.
If your GDS or TDS ratios exceed the recommended limits, it may be difficult to qualify for a mortgage with CMHC insurance. In this case, you may need to reduce your debt obligations or increase your income to meet the qualifying ratios.
You can lower your ratios by reducing your monthly debt payments, such as paying off loans or increasing your income. Additionally, reducing housing costs, such as paying a larger down payment to lower your mortgage payments, can also help.