Buying a House Over One Million Dollars in Canada

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A few years ago, a million dollars would have bought you a detached home in an upscale neighborhood of the big cities of Canada. However, the average house prices in major Canadian cities have almost doubled over the past decade, and average home prices in Toronto and Vancouver have now crossed the $1 million mark. In January 2023, the average home price in Toronto was $1.04 million, and that in Vancouver was $1.16 million.

The increased average home prices, coupled with high mortgage interest rates, raise concerns about affordability, and many Canadians are now left wondering how much they need to save to afford an average home in Toronto or Vancouver. Below, we have summarized everything you need to know about buying a million dollar home in Canada.

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One of the biggest questions is the income required to afford a million dollar house in Canada. Lenders take many factors into consideration, such as the borrower's credit score, debt service ratio, and savings, before approving them for a loan. Mortgages on homes priced over $1 million cannot be insured through the CMHC mortgage insurance, and lenders are very cautious about approving loans for such homes. Thus your income plays a vital role in determining whether you can afford the mortgage payments.

As of January 2023, the household income required to buy a $1 million home is in the range of $200,000 to $280,000. Depending on your housing costs, debt payments, and ongoing interest rate, this can vary. The average income requirement for different house prices of over 1 million dollars, with a downpayment of 20%, is listed in the table below.

*The calculations are based on a mortgage interest rate of 5%. The monthly expenses are assumed to be $1,500, monthly debt payment is assumed to be $500, and the monthly heating cost is assumed to be $200. The annual property tax is assumed to be 0.6% of the property's price. It is assumed that there is no condo fee to be paid every month.

Most Canadians will require a mortgage to buy a home worth over a million dollars. The two most important factors that will help you qualify for a mortgage for a $1 million home are the down payment and debt service ratio.

To buy a million dollar home in Canada, buyers must save up at least 20% of the home's purchase price. This comes to a minimum amount of $200,000. This is because the Canada Mortgage and Housing Corporation (CMHC) does not provide mortgage insurance for homes priced over $1 million.

When a buyer buys a home with less than a 20% downpayment, the mortgage is called a high-ratio mortgage. In such cases, the lenders buy mortgage insurance on the borrower’s behalf from the CMHC, which transfers the risk of such mortgages to the CMHC. However, this option is available only for homes under $1 million.

Thus for a home priced at $1 million, the maximum mortgage amount can be $800,000. Additionally, you would also need to save up for closing costs, including land transfer taxes, legal fees, and inspection costs. Closing costs vary depending on where you’re purchasing the home; however, it is generally advisable to save at least 3% to 4% of the purchase price to cover closing costs. Thus if you are buying a home for $1 million, you would need to save at least another $30,000 for the closing costs.

To sum it up, you would typically be required to save up at least around $230,000 or more to buy a home worth $1 million in Canada.

Debt service ratios are formulas recommended by the CMHC to determine the maximum mortgage amount a household can afford. By adding the down payment to the maximum mortgage amount, you can find the maximum purchase price you can qualify for. There are two kinds of debt service ratios – Gross Debt Service (GDS) and Total Debt Service (TDS). These ratios compare your income with your housing costs and current debt to estimate how much you can afford to borrow.

Gross Debt Service (GDS):

Also called the housing expense ratio, Gross Debt Service is the ratio of your housing costs to your income. Housing costs include expenses such as monthly mortgage payments, utility bill payments, property tax, half of condo fees, half of HOA fees, and other applicable rental fees. CMHC’s maximum allowed limit for GDS is 39%.

Total Debt Service (TDS):

In addition to housing costs, TDS takes into account your debt payments such as credit card debt, car loan payments, line of credit debt, and other debts. It is calculated in a similar manner as the GDS. TDS is the ratio of the sum of housing costs and debt payment to your income. For credit card payments and unsecured line of credit payments, CMHC assumed the minimum payment to be greater of the actual minimum payment and 3% of the outstanding balance plus interest. The amortization period for a secured line of credit is considered to be 25 years. CMHC’s maximum allowed limit for TDS is 44%.

To calculate a $1 million mortgage’s monthly payment and the interest you will end up paying, you need to take into account the mortgage interest rate and the amortization period. For the interest calculation, the payment frequency also makes a difference. The table below shows the monthly payments and total interest paid for different home prices with a minimum down payment, an amortization period of 25 years, and an interest rate of 4%.

*The calculations are based on a mortgage interest rate of 4%.

Read below to understand how the monthly payments and total interest change based on the interest rate and amortization period.

As we saw above, the maximum mortgage amount for a million-dollar home is $800,000. It is noteworthy that the interest rate for uninsurable mortgages might be different from that for insured mortgages. As of February 2023, the best available interest for an uninsurable mortgage is 4.69%. At this rate, the monthly payment for an amortization period of 25 years comes to $4,513. The table below shows monthly payments for different amortization periods for a $1 million home for a 4.69% interest rate.

*The calculations are based on a mortgage interest rate of 4.69%.

On the other hand, if you get a lower interest rate, your monthly payment would be lower, but if you get a higher interest rate, the monthly payments would be more. The table below shows monthly payments for a million-dollar home with different interest rates for a 25-year amortization.

Use our mortgage payment calculator to calculate the monthly payments for different mortgage amounts.

If you assume an interest rate of 4.69% and an amortization period of 25 years, the total interest you end up paying would be $553,803. Adding this to the principal amount of $800,000 and the down payment of $200,000, the home would cost you a total of $1,553,803. The table below shows the interest paid on a million-dollar home for different amortization periods at an interest rate of 4.69%.

*The calculations are based on a mortgage interest rate of 4.69%.

The table below shows the total interest paid for different interest rates for a million-dollar home.

There are some ways to reduce the interest payment, such as by opting for accelerated bi-weekly or accelerated weekly payments.

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House prices vary significantly across Canada. In cities like Toronto and Vancouver, where the average home prices are over $1 million, buyers can expect to buy a townhouse or a semi-detached home for $1 million. The Toronto housing market and Vancouver housing market are much more expensive than markets such as the Edmonton housing market and Winnipeg housing markets, where you could buy detached houses with large backyards for the same amount of money. The table below compares what could a million dollars buy you in major Canadian cities.

Updated February 2023

Before deciding to buy a house worth a million dollars, you should consider several factors.

One important thing to note is that the monthly payments may change depending on the ongoing interest rates. Recently, many borrowers with a variable rate mortgage saw their monthly mortgage payments increase following the Bank of Canada (BoC) rate hikes. Even though this is not always the case, you may have to renew your mortgage at a higher interest rate at the end of the term. Even if you can afford a million dollar home right now, you should consider if you would still be able to afford it if the interest rates go up by 2% - 3% so that you don’t find yourself in an unfavorable situation in the future.

If you were hoping to pay a part of the downpayment with the government of Canada’s assistance, you would likely not be able to do so for a million-dollar home. The government of Canada offers a first-time home buyers incentive, through which first-time buyers can receive 5% to 10% of their home’s purchase price towards a downpayment. However, to be eligible for this benefit, the household income needs to be below $120,000 ($150,000 for Toronto, Vancouver, and Victoria). As discussed above, this income will likely not be sufficient to buy a home worth a million dollars, and the ones who can afford a million-dollar home would not qualify for the benefit.

The average homes in Toronto and Vancouver are priced around a million dollars now. To be able to buy a home priced over $1 million, you would need to save up at least 20% of the house price for a down payment. On average, the lender would require your household income to be $225,000 to be approved for a million-dollar home in Canada. This would also mean that you would not qualify for the government’s first-time homebuyer incentive, and thus you would not be able to receive any down payment assistance.