GDS and TDS Ratios: How Lenders Measure Affordability

Your GDS TDS ratio is how a Canadian lender decides whether you can carry a mortgage: the gross debt service ratio measures housing costs against income, and the total debt service ratio adds your other debts. Together they set the ceiling on what you can borrow, and they are the reason two households with the same income can qualify for very different amounts.

What GDS and TDS measure

Both ratios express a monthly cost as a percentage of your gross monthly income, before tax. GDS looks only at the costs tied to the home. TDS looks at the home costs plus every other debt payment you carry. A lender compares each result against a ceiling and reduces the loan until both ratios fit.

The two ratios work as a pair. You can pass GDS easily and still fail TDS if you carry a lot of consumer debt. That is why paying down a credit card often helps more than a small change in the mortgage rate.

Note that both use gross income, not take-home pay. A lender wants to know what you earn before deductions, because that is the money available to service debt in the lender's model. Your own budgeting should use take-home pay, but the qualification math does not.

Income is also averaged or discounted in ways that can surprise borrowers. Overtime, bonuses, commissions, and self-employment income may be averaged over a period or counted at a reduced share. Rental income is often included at only a portion of the gross rent. The more stable and documented your income, the more of it the lender will count.

What counts in the gross debt service ratio

• Mortgage principal and interest, at the qualifying rate used for the stress test.
• Property taxes, usually annualized and divided by twelve.
• Heating costs, estimated for the property.
• Half of any condo or strata fees, where applicable.

Note that GDS uses the tested payment, not your contract payment, for mortgages subject to the mortgage stress test. That single detail often explains why an affordable-looking payment still produces a tight ratio.

Lenders may estimate heating and taxes from the property rather than accepting your figures, especially if the home is large or older. If the estimate is higher than you expected, the housing cost figure rises and your borrowing room falls.

What counts in the total debt service ratio

• Everything included in GDS.
• Credit card minimum payments.
• Car loans and leases.
• Lines of credit and student loans.
• Child or spousal support obligations.
• Other loan payments with a fixed repayment.

Lenders may use the minimum payment on a credit card, or a percentage of the balance, whichever their policy specifies. A large balance with a low minimum can still consume a meaningful share of your income once the lender applies its own rule. Paying down the balance reduces both the amount owed and the monthly figure the lender counts.

The thresholds lenders use

There is no single legal number that applies to every borrower. Insured mortgages follow federal insurance rules, while uninsured mortgages are governed by the lender's own policy within the regulator's expectations. Common guidelines sit in the range of roughly a third of gross income for GDS and a bit more for TDS, but the exact ceilings vary by lender, product, and whether the loan is insured.

Because the ceilings are guidelines rather than fixed law, confirm the limits your lender applies before you assume a specific percentage. The mortgage affordability calculator lets you test different assumptions quickly. If one lender's ceiling is slightly more generous, the same borrower can qualify for a noticeably larger loan, which is one reason comparing lenders is worthwhile.

A worked example

Suppose a household earns $90,000 a year, or $7,500 a month before tax. Annual property tax is $4,000 and heating is $1,800, so those add about $483 a month. The household also carries $600 a month in other debt. If the lender's ceilings were 32% for GDS and 40% for TDS, housing costs could not exceed $2,400 a month under GDS, and total debt could not exceed $3,000 under TDS.

Under GDS, the mortgage payment could be up to about $1,917 after subtracting taxes and heating. Under TDS, the same calculation after subtracting the $600 of other debt lands at the same figure. The binding constraint here is the mortgage payment itself, and the loan amount that payment supports is what the lender would offer.

Change one input and the answer moves. If the other debt rose to $1,200 a month, TDS would become the tighter constraint and the maximum mortgage payment would fall. If property taxes were higher, GDS would tighten instead. These figures are illustrative only; your own taxes, heating, debts, and the lender's ceilings will differ.

How to improve your ratios

1. Pay down revolving debt, which lowers TDS directly and can be done before you apply.
2. Increase your down payment to reduce the loan and the tested payment.
3. Choose a longer amortization to lower the tested payment, if the rules allow.
4. Add a co-borrower with income and manageable debts.
5. Avoid taking on new credit in the months before you apply.

Each lever moves the math differently, so ask a lender or broker which one helps your file most. To see how the ratios translate into a loan amount, read how much you can borrow and how much mortgage you can afford, then confirm the current limits with your lender.