As Toronto housing prices continue to soar, so do average mortgage payments. According to the Canadian Real Estate Association (CREA), average home prices in Toronto have increased by 22.8% since 2015, with the current average home price in the city sitting at $776,684.
If you’re wondering whether or not you can afford a home in this market, consider the monthly mortgage payment in comparison to your current income and expenses. Even though the average house price in Toronto has increased substantially, low mortgage rates have kept monthly mortgage payments relatively affordable.
To calculate a mortgage payment, you’ll need the home price, down payment amount, mortgage rate, amortization period and payment frequency.
Using the average home price in Toronto, we can calculate the average mortgage payment as follows:
The minimum down payment required to purchase a home in Toronto can be calculated with the following formula:
- If the home price is $500,000 or lower, the minimum down payment is 5% of the home price. The formula is as follows: minimum down payment = house price * 5%
- If the home price is above $500,000 the minimum down payment is 10% of the portion of the home’s price above $500,000 plus 5% of $500,000 (which is $25,000). The formula is as follows: minimum down payment = (house price-$500,000) + $25,000
- If the home price is $1,000,000 or more the minimum down payment is 20% of the home price. The formula is as follows: minimum down payment = house price * 20%
Given the average home price of $776,684 the minimum down payment required is $52,668. The calculation is as follows:
Proportion of house price above $500,000: $776,684 – $500,000 = $276,684
Minimum down payment on proportion of house above $500,000: $276,684 * 10% = $27,668
Minimum down payment on first $500,000 of house price: $500,000 * 5% = $25,000
Total minimum down payment: $27,668 + $25,000 = $52,668
The mortgage rate determines how much interest you will pay on your mortgage; it can be a fixed rate or a variable rate and can span many years.
With a fixed rate mortgage rate, your mortgage payments will always be the same amount as your rate stays constant throughout the term. However, with a variable mortgage rate, your payments will vary as your rate will fluctuate with the prime rate. This is because variable rates are dependent on the prime rate—when the prime rate increases or decreases, so will your variable rate which will then affect how large your mortgage payment is.
Getting the best mortgage rate is the easiest way to reduce your mortgage payment. The most popular mortgage rates are 5-year fixed and 5-year variable rates. To calculate the average mortgage payment in Toronto, we’ll use the best 5-year fixed rate currently on the market of 2.43%.
The amortization period is the length of time you’ll take to pay off your mortgage. This time period is different from your mortgage term, which is how long your mortgage rate is locked in for. Therefore, your amortization period is typically a lot longer than your mortgage term, requiring you to renew your mortgage multiple terms during the amortization period. Amortization periods can be of any length of time, with the most popular term being 25 years. This is the period we’ll use for our calculation.
The payment frequency is how often you would like to make your mortgage payment. The typical frequencies are monthly, biweekly and accelerated biweekly. To calculate the average mortgage payment in Toronto, we’ll use a monthly payment.
Using the mortgage payment calculator, the average monthly mortgage payment for a $776,684 home in Toronto (if you’ve made the minimum down payment, and selected a 25-year amortization period and a 5-year fixed mortgage rate) is $3,333. However, if you decide to increase your down payment to 20% of the home price, the monthly mortgage payment will decrease to $2,762.
These numbers are significantly higher than if you purchased a home in Toronto a year ago. In 2015, the average home price in Toronto was $632,685, and required a minimum down payment of $38,269 (this is $14,000 lower than what is currently required). The average mortgage payment for a home in Toronto in 2015 was $2,715 a month, assuming you made the minimum down payment.