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GDS-TDS Ratios Explained

One of the major qualifiers lenders look at when considering

your application for mortgage financing is your debt service


Now, before we get started, if you prefer to have someone

walk through these calculations with you, assess your financial

situation, and let you know exactly where you stand, let’s

connect. There is no use in dusting off the calculator and

running the numbers yourself when we can do it for you!

However, if you’re someone who likes to know the nitty-gritty

of how things work instead of simply accepting that's just the

way it is, this article is for you. But be warned, there are a lot of

mortgage words and some math ahead; with that out of the

way, let’s get started!

“Debt servicing” is the measure of your ability to meet all of

your financial obligations. There are two ratios that lenders

examine to determine whether you can debt service a


The first is called the “gross debt service” ratio, or GDS, which

is the percentage of your monthly household income that

covers your housing costs. The second is called the “total debt

service” ratio, or TDS, which is the percentage of your monthly

household income covering your housing costs and all your

other debts.

GDS is your income compared to the cost of financing the

mortgage, including your proposed mortgage payments

(principal and interest), property taxes, and heat (PITH), plus a

percentage of your condo fees (if applicable).

Here’s how to calculate your GDS.

Principal + Interest + Taxes + Heat / Gross Annual Income

Your TDS is your income compared to your GDS plus the

payments made to service any existing debts. Debts include car

loans, line of credit, credit card payments, support payments,

student loans, and anywhere else you’re contractually

obligated to make payments.

Here’s how to calculate your TDS.

Principal + Interest + Taxes + Heat + Other Debts / Gross

Annual Income

With the calculations for those ratios in place, the next step is

to understand that each lender has guidelines that outline a

maximum GDS/TDS. Exceeding these guidelines will result in

your mortgage application being declined, so the lower your

GDS/TDS, the better.

If you don’t have any outstanding debts, your GDS and TDS will

be the same number. This is a good thing!

The maximum ratios vary for conventional mortgage financing

based on the lender and mortgage product being offered.

However, if your mortgage is high ratio and mortgage default

insurance is required, the maximum GDS is 39% with a

maximum TDS of 44%.

So how does this play out in real life? Well, let’s say you’re

currently looking to purchase a property with a payment of

$1700/mth (PITH), and your total annual household income is

$90,000 ($7500/mth). The calculations would be $1700

divided by $7500, which equals 0.227, giving you a gross debt

service ratio of 22.7%.

A point of clarity here. When calculating the principal and

interest portion of the payment, the Government of Canada

has instituted a stress test. It requires you to qualify using the

government's qualifying rate (which is higher), not the actual

contract rate. This is true for both fixed and variable rate


Now let’s continue with the scenario. Let’s say that in addition

to the payments required to service the property, you have a

car payment of $300/mth, child support payments of

$500/mth, and between your credit cards and line of credit,

you’re responsible for another $700/mth. In total, you pay

$1500/mth. So when you add in the $1700/mth PITH, you

arrive at a total of $3200/mth for all of your financial

obligations. $3200 divided by $7500 equals 0.427, giving you a

total debt service ratio of 42.7%.

Here’s where it gets interesting. Based on your GDS alone, you

can easily afford the property. But when you factor in all your

other expenses, the TDS exceeds the allowable limit of 42%

(for an insured mortgage anyway). So why does this matter?

Well, as it stands, you wouldn’t qualify for the mortgage, even

though you are likely paying more than $1700/mth in rent.

So then, to qualify, it might be as simple as shuffling some of

your debt to lower payments. Or maybe you have 10% of the

purchase price saved for a downpayment, changing the

mortgage structure to 5% down and using the additional 5% to

pay out a portion of your debt might be the difference you

need to bring it all together.

Here’s the thing, as your actual financial situation is most likely

different than the one above, working with an independent

mortgage professional is the best way to give yourself options.

Don’t do this alone. Your best plan is to seek and rely on the

advice provided by an experienced independent mortgage

professional. While you might secure a handful of mortgages

over your lifetime, we do this every day with people just like


It’s never too early to start the conversation about mortgage

qualification. Going over your application and assessing your

debt service ratios in detail beforehand gives you the time

needed to make the financial moves necessary to put yourself

in the best financial position.

So if you find yourself questioning what you can afford or if you

want to discuss your GDS/TDS ratios to understand the

mortgage process a little better, please get in touch. It would

be a pleasure to work with you, we can get a preapproval

started right away.


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