To calculate your total debt service ratio: 

1. Add up your housing costs (mortgage payments, property taxes, heating and, if applicable, half of your condo fees). Also include any other debt obligations, such credit card and line of credit payments (based on monthly payment amounts of no less than 3% of the outstanding balance), car payments, student loans and child or spousal support. 
2. Divide the total by your gross income, which is your total earnings before taxes and deductions. 
3. To obtain your TDS in the form of a percentage, multiply the result by 100. 

Now, on top of your housing costs listed above, let’s assume your non-housing related debts come in at $800 per month (for example, $600 on credit card and line of credit payments and $200 on your car loan). Your TDS ratio would fall within the limit, at 41%.

When it came to buying my own place, I was well within these numbers, but how much I could end up spending on a new mortgage still made me squeamish. Already in my 40s, shouldn’t I be paying off my mortgage instead of adding to it?

“That’s not reality,” says Calla. As difficult as it might be, she says it’s important to not compare yourself to others. Make the decisions that best suit your lifestyle and goals.

The math behind your down payment

In my case, I was selling my condo to finance the purchase of my new home, so I calculated how much I would have for a down payment based on an estimate of my current home’s value.

First, I tallied the costs associated with moving, including real estate agent commissions, legal fees, moving-day expenses, a home inspection and land transfer taxes (living in Toronto comes with paying double the land transfer tax you pay in other parts of Ontario). To calculate closing costs, the rule of thumb is to budget for 4% of your home’s purchase price. A $500,000 home, for instance, would require $20,000.

I decided not to touch my investments or savings to cover these costs, so I subtracted them from the potential profit of the sale. That left me with a down payment of over 20%, which means I didn’t have to pay mortgage default insurance. 

Let’s bring the math to life using the example of a 25-year mortgage for a $500,000 home, assuming a 5-year term and 3% fixed interest rate. 

Because I was able to make a larger down payment, I knew that would lower my monthly mortgage payments (assuming the same 25-year amortization) as well as the amount of interest I would pay over time. My own calculations suggested I would save at least $50,000 in interest.

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