I earn good money. Why is my car payment cutting how much house I can buy?
Answered by Rajiv Verma, Mortgage Broker · Updated August 2026 · About a 4 minute read
The direct answer
Because a lender doesn’t ask what you earn. It asks what’s already committed before the mortgage starts. Every monthly obligation — car loan, credit card minimum, line of credit, student loan, support payments — comes off the top before your mortgage payment is even considered. A car payment of a few hundred dollars a month can move your maximum purchase price by tens of thousands. It is the single most common reason a strong income produces a disappointing approval.
THE SHORT VERSION
- Lenders test your total monthly debt against your income, not your income alone
- A car payment is the usual culprit — it’s large, fixed, and counts in full
- Credit cards and lines of credit count even at a zero balance, on the room available
- Paying a car loan down but not out often changes nothing — the payment is what’s tested
- Fixing this before you shop is worth more than any rate negotiation
What the lender is actually measuring
Two ratios, and they decide almost everything.
The first compares your housing costs to your income — mortgage payment, property tax, heat, and half the condo fee if there is one.
The second compares your housing costs plus every other debt payment to your income. That second one is where the car lives.
The exact percentages depend on your credit score and whether the mortgage is insured — the score thresholds are set out here. What matters for this question is simpler: the room those ratios leave for a mortgage payment shrinks by roughly whatever your other payments add up to.
The part nobody tells you.
A credit card with a $20,000 limit and nothing on it can still be counted, because lenders often assess the payment you could be making, not the one you are. The same goes for an unused line of credit.
So “I don’t carry a balance” isn’t always the defence people think it is. If you’re carrying limits you’ll never use, closing or reducing some of them before you apply can be worth more than a rate discount.
Why paying it down usually doesn’t help
This is the part clients find hardest to accept. Reducing a car loan balance from $22,000 to $14,000 typically leaves the monthly payment untouched — and the monthly payment is what the ratio tests. You’ve spent $8,000 and moved your approval by nothing.
Clearing the loan entirely does move it. So does refinancing the car over a longer term, though that costs more in total interest and lenders can see it for what it is. So does selling the vehicle.
None of these are automatically right. The point is to find out which lever actually works before you spend money on one that doesn’t.
What this has to do with your down payment
Nothing directly, but the two interact, so it’s worth knowing where the lines sit.
- Purchase price up to $500,000 — minimum 5% down
- $500,000 to $1.5 million — 5% on the first $500,000, then 10% on the portion above it
- $1.5 million and over — minimum 20% down, and mortgage insurance is not available
Insured first-time buyers and new-build purchasers can also access a 30-year amortisation, which lowers the monthly payment and therefore the ratio. That can partly offset a car payment — at the cost of more interest across the life of the mortgage.
What to check before you shop
- Every monthly payment on your credit report, not just the ones you think of as debt
- Limits on cards and lines of credit, including ones you never use
- Whether your car loan can be cleared rather than reduced
- Any co-signed loan — you’re on the hook for the full payment in the ratio, whoever pays it
- Whether the 30-year amortisation applies to you
What to do next
Send me the numbers before you start looking at houses. Income, down payment, and every monthly payment you have. I’ll tell you what price actually works today, and what it becomes if you clear the car.
Sometimes the honest answer is to wait three months. I would rather tell you that now than after you’ve made an offer.
Related questions
- The online calculator says I can afford more. Why is my approval lower?
- Can I make an offer first and sort out the mortgage after?
- What credit score do I need for a mortgage in Ontario?
Answered by Rajiv Verma, Mortgage Broker · Mortgage Architects — FSRA Brokerage Licence #12728 · Licensed in Ontario · Office 289.505.0631 · Direct 647.291.7116
General educational information only, not advice on a specific mortgage. Down payment minimums and insured mortgage rules stated as at August 2026 and can change. Your approval depends on a full review of your income, credit, debts and the property.