What Are Debt Service Ratios?
Debt service ratios are calculations that lenders use to determine how much mortgage debt you can reasonably afford based on your income. In Canada, there are two primary ratios that lenders evaluate:
- GDS (Gross Debt Service) Ratio - Housing costs only
- TDS (Total Debt Service) Ratio - All debt obligations
These ratios help ensure you won't become over-extended financially and can comfortably manage your mortgage payments along with your other financial obligations.
GDS Ratio (Gross Debt Service)
What's Included in Housing Costs?
- Monthly mortgage payment (principal and interest)
- Property taxes (monthly portion)
- Heating costs
- 50% of condo fees (if applicable)
GDS Guidelines
Maximum recommended: 32-39%
Most lenders prefer your GDS ratio to be below 32%, though some may allow up to 39% depending on your overall financial profile and credit strength.
GDS Calculation Example
Gross Monthly Income: $6,000
Housing Costs:
- Mortgage payment: $1,500
- Property taxes: $250
- Heating: $100
- Condo fees (50%): $150
- Total: $2,000
GDS Ratio: ($2,000 ÷ $6,000) × 100 = 33.3%
TDS Ratio (Total Debt Service)
What's Included in Total Debts?
- All housing costs (from GDS calculation)
- Credit card payments (minimum monthly payment)
- Car loans or leases
- Student loans
- Personal loans or lines of credit
- Other debt obligations
TDS Guidelines
Maximum recommended: 40-44%
Lenders typically want your TDS ratio below 40%, though some may accept up to 44% for borrowers with strong credit and stable income.
TDS Calculation Example
Gross Monthly Income: $6,000
Total Debt Obligations:
- Housing costs: $2,000
- Car loan: $400
- Credit card minimum: $100
- Student loan: $200
- Total: $2,700
TDS Ratio: ($2,700 ÷ $6,000) × 100 = 45%
⚠️ This ratio exceeds recommended guidelines
Why These Ratios Matter
For Lenders
- Assess your ability to repay the mortgage
- Determine maximum loan amount
- Evaluate financial stability
- Comply with lending regulations
For You
- Understand your true affordability
- Avoid over-extending financially
- Plan for comfortable payments
- Leave room for savings and emergencies
How to Improve Your Ratios
💰 Increase Your Income
- Include all sources of income
- Add a co-borrower
- Consider bonus/commission income
- Document rental income
📉 Pay Down Debt
- Pay off credit cards
- Eliminate car loans early
- Consolidate high-interest debt
- Close unused credit accounts
🏠 Adjust Housing Budget
- Look at lower-priced homes
- Make a larger down payment
- Consider a longer amortization
- Shop for lower property taxes
⏰ Time Your Purchase
- Wait until debts are paid off
- Delay until income increases
- Build up your down payment
- Improve your credit score first
Important Considerations
🏦 Different Lenders, Different Rules
While the general guidelines are 32% for GDS and 40% for TDS, different lenders may have varying requirements:
- Traditional Banks: Usually strict with standard ratios
- Credit Unions: May offer more flexibility
- Alternative Lenders: May accept higher ratios but with higher rates
- Insured vs. Uninsured: Insured mortgages may have stricter requirements
📊 Stress Test Impact
Your ratios are calculated using the stress test rate (the higher of your contract rate + 2% or 5.25%), not your actual mortgage rate. This means you're qualified based on a higher payment than you'll actually make, providing a safety cushion.
💡 Beyond the Numbers
Even if you qualify for a certain amount, consider your lifestyle and financial goals:
- Do you want room in your budget for vacations and entertainment?
- Are you planning to have children or other major life changes?
- Do you have emergency savings beyond your down payment?
- Are your job and income stable and secure?
Ready to Calculate Your Ratios?
Use our mortgage calculator to see how different scenarios affect your GDS and TDS ratios, or contact us for a personalized assessment.
Affordability Calculator
Last Updated: April 2026