Car Payments and Your Mortgage
Thinking about buying a new home and a new car? You’re not alone! But before you sign on the dotted line for that shiny new vehicle, let’s talk about how car payments can impact your mortgage approval especially here in British Columbia, where both housing and transportation costs are on the rise.
Whether you're a first-time homebuyer or looking to upgrade, understanding how lenders view your monthly debt obligations (like car loans or leases) is key to getting the mortgage you want.
Why Your Car Payment Matters to Lenders
When you apply for a mortgage in BC, lenders look closely at your debt-to-income ratio a fancy way of saying how much of your monthly income is already going toward debt payments.
This includes:
Credit cards
Student loans
Lines of credit
Car loans or leases
And yes, even those "0% financing" car deals
The more monthly debt you carry, the less room you have in your budget (on paper) for a mortgage payment even if you feel comfortable managing both.
Example: How a Car Payment Affects Your Mortgage Amount
Let’s break it down.
Let’s say you make $80,000/year (around $6,667/month before tax).
You have:
A car payment of $600/month
No other debt
That $600 payment can reduce your maximum mortgage approval by $100,000 or more, depending on your lender and interest rates.
Why? Because lenders assume that $600 is permanently spoken for. That’s $600 less you can put toward a mortgage payment in their calculations.
The “Stress Test” Makes It Tougher
On top of regular lending rules, Canadian mortgage applicants must pass a mortgage stress test. This means you need to qualify for your mortgage as if the interest rate were higher (currently 2% above your contract rate, or the benchmark rate—whichever is higher).
Car payments tighten your ability to pass this test, especially in higher-price markets like Vancouver, Victoria, Kelowna, and the Fraser Valley.
Should You Delay Buying a Car?
If you're planning to buy a home in the next 6–12 months, here’s what I usually recommend:
Hold off on large car purchases
If you’re financing or leasing a new vehicle, wait until after your mortgage is finalized. That new loan could seriously shrink your borrowing power.
Pay down your car loan
If you already have a car loan, consider making extra payments to reduce the balance. Even a lower monthly payment can help your mortgage numbers.
Keep me in the loop!
Always tell your broker about all debts—including "future plans." I can help you strategize the best timing for purchases so you’re not hurting your mortgage options.
What If You Already Have a Car Loan?
Don't panic! Lots of people qualify for mortgages with car loans in place. But we may need to:
Adjust the mortgage amount or home price
Consider lenders with more flexible debt guidelines
Explore co-signers or joint applications
Look into restructuring or consolidating other debts
A BC Reality Check
Here in BC, where average home prices are some of the highest in Canada, every bit of borrowing room counts. A $500–$800/month car payment can make or break a deal—especially if you’re already stretching to enter the market.
And remember leasing a luxury vehicle right before your pre-approval? That might impress your neighbours, but not your lender.
Final Thoughts
Your car gets you from Point A to B but it might be blocking your path to homeownership if you're not careful
Before you take on (or renew) a vehicle loan or lease, let’s talk. I’ll help you understand exactly how it impacts your borrowing power and what your best next move is.