Before approving your mortgage, every lender in Canada calculates two key ratios — GDS and TDS. These ratios determine how much you can borrow. Here’s how they work and how to calculate yours.
The two ratios Ratio Full Name What It Measures Maximum (A-Lender) GDS Gross Debt Service Housing costs as a % of gross income 39% TDS Total Debt Service All debts as a % of gross income 44%
Both must be under the maximum for mortgage approval. If either exceeds the limit, the mortgage amount must be reduced or the application is declined.
GDS: Gross Debt Service ratio $$GDS = \frac{\text{Mortgage Payment} + \text{Property Taxes} + \text{Heating} + \text{50% Condo Fees}}{\text{Gross Annual Income}} \times 100$$
What counts as housing costs Cost Component How It’s Calculated Typical Amount Mortgage payment Monthly P+I at the qualifying rate (stress test rate) Varies by amount and rate Property taxes Annual property tax ÷ 12 $200–$600/month depending on location Heating Lender estimate (usually a flat amount) $100–$175/month 50% of condo fees Only if condo; half is assumed to cover maintenance (not housing) $150–$400/month (50% of $300–$800)
GDS calculation example Component Monthly Amount Mortgage payment (at qualifying rate) $2,400 Property taxes $350 Heating $125 50% condo fees $0 (freehold) Total housing costs $2,875 Gross monthly income $8,333 ($100,000/year) GDS $2,875 ÷ $8,333 = 34.5% ✓
TDS: Total Debt Service ratio $$TDS = \frac{\text{Housing Costs (GDS)} + \text{All Other Debt Payments}}{\text{Gross Annual Income}} \times 100$$
What counts as “other debts” Debt Type How Lenders Calculate Monthly Payment Credit card balance 3% of outstanding balance (even if you pay in full monthly) Car loan Actual monthly payment Student loan Actual monthly payment (or estimated if in deferral) Line of credit Interest-only payment on current balance HELOC Interest-only payment on current balance Personal loan Actual monthly payment Alimony / child support Court-ordered amount Other mortgages Payment on any other property you own Co-signed loans Full payment counts even if someone else pays
TDS calculation example Component Monthly Amount Total housing costs (from GDS) $2,875 Credit card ($10,000 balance × 3%) $300 Car loan $450 Student loan $200 Total debt service $3,825 Gross monthly income $8,333 TDS $3,825 ÷ $8,333 = 45.9% ✗ Over 44% limit
In this example, the GDS passes (34.5%) but the TDS fails (45.9%). The borrower needs to reduce other debts or lower the mortgage amount.
The stress test: qualifying rate Lenders don’t use your actual mortgage rate for ratio calculations — they use the stress test rate .
Stress Test Rule Current Application Qualifying rate = higher of: Contract rate + 2% or 5.25% (Bank of Canada benchmark) If contract rate is 4.50% Qualifying rate = 6.50% (4.50% + 2%) If contract rate is 3.00% Qualifying rate = 5.25% (floor is 5.25%) If contract rate is 5.50% Qualifying rate = 7.50% (5.50% + 2%)
How the stress test reduces borrowing power Scenario $100K Income, 25-yr Am, GDS 39% At contract rate 4.50% Mortgage = ~$520,000 At stress test rate 6.50% Mortgage = ~$415,000 Reduction ~$105,000 (–20%)
Maximum ratios by lender type Lender Type Max GDS Max TDS Notes A-lenders (standard) 39% 44% OSFI B-20 guidelines A-lenders (exceptions) 44% 49% With strong compensating factors Insured (CMHC/Sagen) 39% 44% Hard limits for insured mortgages Credit unions (some) 44% 50% Not bound by OSFI; stress test may not apply B-lenders 50% 55%+ More flexible; higher risk tolerance Private lenders N/A N/A Focus on LTV and equity, not ratios
How much mortgage can you afford? (By income) Single income, no other debts, freehold property Assuming: GDS 39%, stress test rate 6.50%, $300/mo property tax, $125/mo heating, 25-year amortization.
Gross Annual Income Gross Monthly Max Housing Cost (39% GDS) Max Mortgage Payment Approx. Max Mortgage $60,000 $5,000 $1,950 $1,525 ~$230,000 $80,000 $6,667 $2,600 $2,175 ~$330,000 $100,000 $8,333 $3,250 $2,825 ~$415,000 $120,000 $10,000 $3,900 $3,475 ~$510,000 $150,000 $12,500 $4,875 $4,450 ~$650,000 $200,000 $16,667 $6,500 $6,075 ~$890,000
Dual income, $500/mo other debts, condo ($600/mo fees) Assuming: TDS 44%, stress test rate 6.50%, $350/mo property tax, $125/mo heating, 50% of $600 condo fees = $300, $500/mo other debts, 25-year amortization.
Combined Gross Income Max Debt Service (44% TDS) Less: Taxes + Heat + Condo + Other Debts Max Mortgage Payment Approx. Max Mortgage $100,000 $3,667 –$1,275 $2,392 ~$355,000 $130,000 $4,767 –$1,275 $3,492 ~$515,000 $160,000 $5,867 –$1,275 $4,592 ~$680,000 $200,000 $7,333 –$1,275 $6,058 ~$890,000 $250,000 $9,167 –$1,275 $7,892 ~$1,155,000
Income types and how lenders count them Income Type How Lenders Calculate Documentation Salaried employment Base salary (100%) Letter of employment, recent pay stubs Hourly (full-time) Hourly rate × guaranteed hours × 52 ÷ 12 2 years of T4s, pay stubs Overtime Average of 2 years; counted at 50%–100% 2 years of T4s showing consistency Commission Average of 2 years; some lenders use lower year 2 years of T4s + T1 Generals Bonus Average of 2 years; counted at 50%–100% 2 years of T4s or employer letter Self-employed Average of 2 years’ net income (Line 15000 of T1) T1 Generals, NOAs, financial statements Self-employed (BFS) Business-for-Self stated income (B-lender) Bank statements, proof of business Rental income 50%–80% of gross rent added to income Lease agreements, T1 rental income Child support received 100% (if court-ordered and consistent) Court order, proof of receipt Pension / retirement income 100% Pension statement, T4A Investment income Average of 2 years T5s, account statements Part-time / second job Average of 2 years if consistent T4s showing both jobs
How to lower your ratios Reduce GDS Strategy Impact Reduce mortgage amount (larger down payment)Directly lowers mortgage payment Extend amortization (25 → 30 years if eligible)Lowers monthly payment ~12% Choose variable rate (if lower qualifying rate)May marginally reduce stress test rate Choose a less expensive home Reduces mortgage + taxes Move to a lower-tax municipality Reduces property tax component
Reduce TDS Strategy Impact Pay off credit card balances Removes the 3% minimum payment from calculation Pay off car loan Eliminates that payment from TDS Consolidate debts at lower rate May reduce monthly payment total Pay off student loans Eliminates payment from calculation Remove yourself as co-signer Removes the co-signed debt from your ratios
Increase income (denominator) Strategy Impact Add a co-borrower Combined incomes increase qualification Document all income sources Ensure bonus, commission, and overtime are included Include rental income If you have a rental suite or investment property Wait for a raise/promotion Higher documented income improves ratios
Common mistakes in ratio calculations Mistake Reality “I pay off my credit card every month, so it doesn’t count” Wrong — lenders use 3% of the balance on your statement, regardless of whether you pay in full“My partner pays the car loan, not me” If it’s in your name or you co-signed, the full payment counts in your TDS “I’ll use my contract rate for calculations” Wrong — the stress test rate is always higher than your contract rate“I don’t have a heating bill, I’m buying a condo” Lenders still use a standard heating estimate ($100–$175/month) even for condos “My parents gift me money monthly — that’s income” Gifts are not income for mortgage qualification (though they can be down payment)
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