GDS and TDS Ratios Explained

When you apply for a mortgage, your lender uses two key ratios to determine how much you can afford to borrow. These are the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio. Understanding these ratios gives you the ability to estimate your borrowing power — try our affordability calculator — before you even talk to a lender — and to take steps to improve your position if your ratios are too high.

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Gross Debt Service (GDS) Ratio

Your GDS ratio measures what percentage of your gross monthly income (before taxes and deductions) goes toward housing costs. For most lenders and insured mortgages, the maximum GDS ratio is 39%.

What Counts as Housing Costs

The GDS calculation includes all the costs directly associated with owning and maintaining your home:

• Mortgage payment — Principal and interest (calculated at the stress test rate, which is the higher of your contract rate plus 2% or the Bank of Canada’s qualifying rate, currently 5.25%)
• Property taxes — Your estimated annual property taxes divided by 12. Property taxes vary significantly by municipality — they can range from $2,000/year in parts of Alberta to $6,000+/year in many Ontario municipalities for a similar home.
• Heating costs — Lenders use a standard estimate, typically $100 to $175 per month depending on the property type and location. Some lenders use a flat rate; others adjust based on the specific home.
• 50% of condo fees — If you are buying a condo or strata unit, half of the monthly maintenance fees are included. The rationale is that a portion of condo fees covers items that would be personal expenses for a homeowner (heating, water, insurance), while the other portion covers building maintenance and reserve fund contributions.

The GDS Formula

GDS = (Mortgage Payment + Property Taxes + Heating + 50% Condo Fees) / Gross Monthly Income

The result must be 39% or less to qualify with most lenders.

Worked Example: Individual Buyer

Sarah earns $85,000 per year ($7,083 gross monthly income). She wants to buy a condo with monthly costs of:

• Mortgage payment (at stress test rate): $2,100
• Property taxes: $250/month
• Heating: $100/month
• Condo fees: $450/month (50% = $225)

GDS = ($2,100 + $250 + $100 + $225) / $7,083 = $2,675 / $7,083 = 37.8%

Sarah’s GDS is 37.8%, which is under the 39% maximum. She would likely qualify based on GDS alone.

Worked Example: Couple Buying Together

James and Priya earn a combined $140,000 per year ($11,667 gross monthly income). They want to buy a townhouse:

• Mortgage payment (at stress test rate): $3,200
• Property taxes: $375/month
• Heating: $150/month
• No condo fees

GDS = ($3,200 + $375 + $150) / $11,667 = $3,725 / $11,667 = 31.9%

Their GDS is well within the limit, leaving room for other debts in the TDS calculation.

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Total Debt Service (TDS) Ratio

Your TDS ratio takes the GDS calculation and adds all your other monthly debt obligations. For most lenders and insured mortgages, the maximum TDS ratio is 44%.

What Additional Debts Are Included

On top of the housing costs from the GDS calculation, the TDS includes:

• Car payments — Monthly loan or lease payments
• Student loan payments — Your required monthly payment (not the total balance)
• Credit card minimum payments — Typically calculated as 3% of your outstanding balance, even if you pay more than the minimum each month
• Line of credit payments — The required monthly payment on any outstanding balance
• Child support or spousal support — If you are required to make these payments
• Any other loan obligations — Personal loans, buy-now-pay-later plans, financed furniture, etc.

The TDS Formula

TDS = (Housing Costs + All Other Monthly Debt Payments) / Gross Monthly Income

The result must be 44% or less to qualify with most lenders.

Worked Example: How Existing Debt Reduces Borrowing Power

Marcus earns $96,000 per year ($8,000 gross monthly income). He has the following debts:

• Car payment: $450/month
• Student loan: $250/month
• Credit card balance of $5,000 (minimum payment: $150/month)

Maximum TDS spending: $8,000 x 44% = $3,520/month

Available for housing: $3,520 - $450 - $250 - $150 = $2,670/month

Now compare to his GDS limit:

Maximum GDS spending: $8,000 x 39% = $3,120/month

Without his debts, Marcus could spend up to $3,120/month on housing. But his $850/month in debt obligations reduces his available housing budget to $2,670/month. The TDS ratio is the binding constraint, not the GDS ratio.

If Marcus had no debts at all, that extra $850/month in available housing budget would translate to approximately $170,000 in additional borrowing capacity (depending on interest rates and amortization). This is why paying down debt before applying for a mortgage can dramatically increase what you can afford.

Worked Example: The Impact of Paying Off a Car Loan

Using Marcus’s situation above, what happens if he pays off his $450/month car payment before applying?

• Available for housing would increase from $2,670 to $3,120/month
• That additional $450/month translates to roughly $90,000 in extra mortgage capacity
• His TDS would now match his GDS limit, giving him maximum borrowing power

Tip

If you are carrying significant debt, paying it down before applying for a mortgage could dramatically increase your borrowing power. Eliminating a $400/month car payment could add approximately $80,000 to your maximum mortgage. Even paying off a credit card with a $150/month minimum payment could add $30,000 to your capacity. Run the numbers and prioritize paying off debts with the highest monthly payments first — it is the monthly payment that matters for your ratios, not the total balance.

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The Stress Test and How It Affects Your Ratios

When lenders calculate your GDS and TDS, they do not use your actual mortgage interest rate. They use the stress test rate, which is the higher of:

• Your contract rate plus 2%, or
• The Bank of Canada’s qualifying rate (currently 5.25%)

For example, if your actual mortgage rate is 4.5%, the stress test rate would be 6.5% (4.5% + 2%). Your monthly payment at 6.5% is much higher than your actual payment at 4.5%, which means your GDS and TDS ratios are calculated using a payment that is significantly larger than what you will actually pay.

The stress test is designed to ensure you could still afford your mortgage if rates rise. It has been required for all mortgages in Canada since 2018 (the “B-20 guidelines”). The practical effect is that it reduces your maximum borrowing power by roughly 15-20% compared to what you could borrow without the stress test.

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What If Your Ratios Are Too High?

If your GDS or TDS exceeds the limits, you have several options:

1. Pay down existing debt — The most effective way to improve your TDS ratio. Focus on debts with the highest monthly payments.
2. Increase your down payment — A larger down payment means a smaller mortgage, which reduces your monthly payment and improves your GDS. Once your ratios look strong, the next step is getting pre-approved.
3. Lower your target purchase price — Looking at less expensive homes reduces the mortgage you need.
4. Add a co-borrower — If you are buying with a partner or spouse, their income is added to the denominator, improving your ratios. However, their debts are also added.
5. Increase your income — A raise, promotion, second job, or side income can improve your ratios. However, most lenders want to see at least 2 years of consistent income from a secondary source before counting it.
6. Extend your amortization — A 30-year amortization (where available) results in a lower monthly payment than a 25-year, which can bring your GDS within limits.

Caution

Some lenders and insured mortgage programs allow slightly higher GDS and TDS limits for borrowers with strong credit scores (above 680). For example, some CMHC-insured mortgages allow GDS up to 39% and TDS up to 44% for borrowers with good credit, while borrowers with lower credit scores may be held to stricter limits. Always confirm the specific limits with your lender.

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