Your debt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments. Lenders use it to judge whether you can take on another payment, and it’s a quick way to see whether debt is crowding out the rest of your budget. This page shows how to calculate it, the rough ranges lenders work with, and the ways to lower it. The debt strategies hub lists the other debt guides.
Mortgage lenders use two specific versions of the ratio, the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios, with their own limits and a qualifying rate under the stress test. Those are covered in GDS and TDS ratios explained.
How to calculate your DTI
DTI = total monthly debt payments ÷ gross monthly income × 100
Debt payments include rent or mortgage payments if you’re applying for credit that counts them, car loans, student loans, the minimum payments on credit cards and lines of credit, personal loans and support payments. Gross income is income before tax and deductions.
A borrower earns $90,000 a year, or $7,500 a month, and pays:
| Debt | Monthly payment |
|---|---|
| Mortgage | $2,100 |
| Car loan | $450 |
| Student loan | $300 |
| Credit card minimums | $150 |
| Line of credit minimum | $100 |
| Total | $3,100 |
DTI = $3,100 ÷ $7,500 = 41.3%.
If the same borrower’s income rose by $10,000 a year, the ratio would fall to 37.2% with the same payments. Paying off the car loan instead would bring it to 35.3% on the original income.
Because the example includes the mortgage, its ratio works the way a mortgage lender’s TDS ratio does, though lenders add property taxes, heating and part of any condo fees, and use a qualifying rate rather than the contract rate. The GDS and TDS guide has those details.
What lenders look for
There’s no single legal limit for loans other than insured mortgages; each lender sets its own. As a rough guide to how lenders tend to read the ratio:
| DTI | How lenders tend to see it |
|---|---|
| Below 36% | Comfortable; most products available |
| 36% to 40% | Good; approval likely |
| 40% to 44% | Acceptable for many lenders; new borrowing gets closer review |
| 44% to 50% | High; mainstream approval becomes harder |
| Above 50% | Very high; options narrow to lenders charging more |
Lenders also look at credit history, income stability and the type of debt. A high ratio driven by a mortgage on a home you own reads differently from the same ratio driven by credit card balances. For personal loans and lines of credit, approval depends on the lender’s own criteria; personal loans compares the options.
How to lower your DTI
The ratio has two parts, so it falls when payments go down or income goes up.
Lowering payments:
- Clearing a balance entirely removes its payment from the total, so paying off a small loan or a card can lower the ratio more than spreading the same money across several debts.
- Paying down revolving balances (credit cards and lines of credit) lowers their minimum payments, since minimums are usually a percentage of the balance.
- Consolidating several debts into one loan can lower the total monthly payment, though a longer term can mean more interest overall; debt consolidation loans covers when it saves money.
- Not adding new payments in the months before applying for a mortgage or loan.
Raising the income counted:
- A co-borrower’s income is added, along with their debts.
- Rental and self-employment income count when documented; lenders typically ask for tax returns and notices of assessment, and for self-employment, two years of history.
When the ratio signals a debt problem
A high ratio that comes from credit cards and loans rather than a mortgage often means debt payments are leaving too little for everything else. The debt payoff plan sets out the steps for paying it down. If the payments themselves can’t be covered, the options range from a debt management plan through a credit counsellor to a consumer proposal, compared in the debt relief options guide.