If you have been following me on Instagram stories, you would know that I found my next “dream home.” For years, I almost always knew where I want my next home to be. I don’t normally have a specific unit in mind but I would have a specific building that I wanted. This started when we were renting. I remember checking the building’s website for weeks one time and contacted the agent as soon as a unit became available. Another time, my mom and I were out on a walk when she was visiting. We passed a building in my neighborhood and I told her I wanted to move here one day. We bought our first home there a year or two later.
The thing is – I am always thankful for what I already have and geniunely love our current place. However, I find change exciting. We used to move quite often and have definitely slowed down in the past few years. Since we moved to our current place and did some renovation, for the first time in years, I did not have my next home in mind for months. We have been touring places on and off in different neighborhoods and nothing has really caught our eyes. We even checked out the newly completed Sanctuary in Horseshoe Bay last year and even that did not make us go: “let’s go home and work harder.”
Things changed a couple of weeks ago when I was doing my usual REW browsing. I found a building that made me go, “i am in love.” We drove by to check out the building last week and went to an open house yesterday. While the size did not give us the WOW factor (it felt just a bit bigger than our current home despite it being 25% bigger on paper), everything else did. The oversized balcony, epic ocean view and amenities were all solid selling points for us. Overall, it gave dreamy vibe.
When we got home, I decided to sit down and take a look at the numbers. I had to do this because I actually had a hard time visualizing what a large mortgage like this will look like (the mortgage will be $1 million even if you put down a $1 million down payment). What kind of income level would make this an affordable purchase? Is a monster down payment necessary in terms of mortgage stress test?
About The $2 Million Dollar Condo
Here are some facts about the condo of my dream (I literally dreamed about it yesterday) before we go on the journey together:
- Brand new, built in 2022
- Concrete 7-floor building with < 40 units
- 2-bedroom units range from 1,000 sq ft to 1950 sq ft with oversized balconies (200 – 600 sq ft)
- All units are ocean-front with panaromic view
While the available 2-bedroom listings start from $2.5MM, I am going to run the analysis based on a $2MM price tag as this is more reflective of market price.
Down Payment, Income & Stress Test
One question I did not have answer to immediately was this: what is a reasonable down payment? While a down payment can be as little as 5%, I have a feeling that buyers of a > $2MM condo put down way more than that. So, I ran some numbers based on two different scenarios (25% & 50%).
Option 1: $500,000 / 25% Down Payment
FYI interest rates are higher for property > $1MM because insurance reason
| Mortgage Information | For 5 Years | Monthly Housing Costs |
| Down Payment: $500,000 Mortgage Amount: $1,500,000 Interest Rate: 5 Years Fixed Rate @ 6% Amortization Period: 25 Years | Monthly Mortgage Payment: $9,597 Principal Payment: $152,449 Interest Costs: $423,377 | Mortgage Payment: $9,597 Strata: $950 Property Tax: $500 Utilities & Insurance: $400 Total Housing Costs: $11,447 |
| Minimum Household Gross Income* | Average Personal Income for 2-Person Household |
| $429,000 ($11,447 / 32% * 12 months) | $215,000 ($429,000 / 2 people) |
| Monthly Cash Flow @ 2 x $215,000 income |
| After-Tax Income: $22,812** Housing Costs: ($11,447) Remaining Cash: $11,365 (equivalent to a single $210,000 income) |
| Mortgage Stress Test ❌ |
| Stress Test Rate: 8%*** GDS Ratio: 34.5% ($12,348/ $35,750) ❌ TDS Ratio: 34.5% ($12,348 / $35,750) ✔️ Conclusion: Did not pass as GDS is 2.5% > 32% target ratio. TDS is within target of 40%. |
Option 2: $1,000,000 / 50% Down Payment
| Mortgage Information | For 5 Years | Monthly Housing Costs |
| Downpayment: $1,000,000 Mortgage Amount: $1,000,000 Interest Rate: 5 Years Fixed Rate @ 6% Amortization Period: 25 Years | Monthly Mortgage Payment: $6,398 Total Principal Payment: $101,633 Total Interest Costs: $282,251 | Mortgage Payment: $6,398 Strata: $950 Property Tax: $500 Utilities & Insurance: $400 Total Housing Costs: $8,248 |
| Minimum Household Gross Income* | Average Personal Income for 2-Person Household |
| $310,000 ($8,248 / 32% * 12 months) | $155,000 |
| Mortgage Stress Test ✔️ |
| Stress Test Rate: 8%*** GDS Ratio: 33% ($8,532 / $25,833) ❌ TDS Ratio: 33% ($8,532/ $25,833) ✔️ Conclusion: An exception can likely be made as GDS ratio is only 1% > 32% target ratio. TDS is within target of 40%. |
| Monthly Cash Flow (2 x $155,000 Income) |
| After-Tax Cash Flow: $17,496** Total Housing Costs: ($8,248) Remaining Cash: $9,248 (equivalent to a single $165,000 income) |
So Who Can Afford The $2 Million Condo of My Dream?
The top 10% of earners in Canada make about $174,400 annually based on this post. So, to be able to comfortably afford a $2 million dollar condo, you need the following:
- two high-income earners or one very-high income earner in the household (>$310,000 household income)
- a sizable down payment (>$500,000)
- no other debt (strictly for stress test purposes as I performed the ratio calculations with this assumption)
*Based on CMHC’s guideline of financial readiness on owning a home, your monthly housing costs should be no more than 32% of your average gross (pre-tax) monthly income.”
**I used this calculator & BC tax rate
***as of Apr 2023, the stress test rate is the higher of 5.49% or your actual rate of 6% + 2%; this increased monthly mortgage payment
