The amount a lender will lend you isn't based on what you'd like your payment to be. It's based on a few fixed rules that every lender in Canada starts from. Knowing them takes some of the mystery out of a pre-approval, and shows which parts of your situation actually move the number.
Rule one: the debt service ratios
The credit scores lesson introduced the two ratios lenders use, both measured against gross (before-tax) income.
Gross debt service (GDS) counts housing costs: the mortgage payment, property tax, heating and half of any condo fees. Total debt service (TDS) adds every other debt payment: car loans, student loans, credit card minimums, lines of credit. For insured mortgages, the limits are 39% for GDS and 44% for TDS, and most lenders use the same limits for uninsured ones too.
Rule two: the stress test
The payment used in those ratios isn't the payment you'll actually make. Lenders test it at a higher qualifying rate: the greater of your contract rate plus 2%, or 5.25%.
So if you're offered 4.25%, you're tested as if the rate were 6.25%. The idea is to check that the payment would still be manageable if rates were higher at renewal. It applies to insured and uninsured mortgages alike.
A worked example
Here's one household, with estimated figures:
| Household income before tax | $120,000 a year |
| Down payment saved | $60,000 |
| Car loan and other debt payments | $900 a month |
| Contract rate | 4.25% (tested at 6.25%) |
| Amortization | 25 years |
| Property tax and heating | 1% of the price a year, plus $100 a month |
Under these rules, the highest price that passes is about $501,000. The limit comes from TDS: the $900 a month in other debt payments uses up room that would otherwise go to housing.
If they cleared $400 a month of that debt before applying, bringing other payments down to $500, the highest price rises to about $554,000. At that price, the mortgage with its insurance premium is about $509,300. The payment they'd actually make at 4.25% is about $2,749 a month, but the lender tests it at about $3,335.
Try it
Your borrowing limit, stress tested
The highest price that passes the stress test and the 39% / 44% limits. Try lowering the other debt payments, or switching to 30 years.
Highest price
$501,000
Stress-test rate
6.25%
you'd pay 4.25%
Payment you'd make
$2,454
Payment it's tested at
$2,977
Income sets the limit, through the total debt service ratio. Lower other debt payments would raise it.
What else moves the number
A larger down payment helps in two ways: it reduces the mortgage, and above 20% it removes the insurance premium. A longer amortization lowers the payment the lender tests. Since December 2024, first-time buyers and buyers of new builds can choose 30 years on an insured mortgage; in this example, 30 years lifts the highest price to about $585,000, at the cost of more interest over time, as the first lesson showed.
A co-borrower's income counts too, along with their debts.
Pre-approval, and what it isn't
A pre-approval is a lender's review of your income, debts and credit before you shop. It usually comes with a rate hold, often 90 to 120 days, so you can buy at that rate even if rates rise in the meantime.
It isn't a final approval. The lender will still check the property itself, confirm your income and down payment with documents, and look at your credit again before the mortgage is funded.
It's also worth separating two numbers: the most a lender will approve, and the payment that leaves room in your own budget for everything else. They're often different, and you can choose to borrow less than the maximum.
Where to go next
Lenders and brokers will ask for a stack of paperwork to work all this out. The next lesson covers what a broker does, how they're paid, and what to gather.
Worked figures are estimates based on the example inputs shown, checked October 11, 2026. Rates, rules and lender policies change, and your own numbers will differ. This is educational information, not financial advice.