This debt service ratio calculator helps you calculate Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. These two ratios are key in determining home affordability in Canada.
What are debt service ratios?
Debt service ratios measure the relationship between your income and your ability to service debt payments. Lenders use these ratios to determine how much money they can safely lend you. These ratios are critical when purchasing a home, as lenders will limit the amount you can borrow so that you do not exceed the maximums set for these ratios.
The GDS and TDS ratios are used in the calculation of the mortgage stress test, which limits the total home you are able to afford based on your income and outstanding debt.
Gross Debt Service (GDS) calculation
The maximum GDS ratio in Canada is 39% as outlined by the CMHC. This percentage represents the portion of your gross income that housing costs should not exceed. Without mortgage insurance, some lenders may require a lower ratio in the 32%–35% range.
GDS is calculated taking into consideration principal, interest, property taxes, and heating — commonly known by the acronym PITH. If you are purchasing a condo, then 50% of the condo fees are included in the calculation.
Gross Debt Service (GDS) Ratio = [(PITH + 50% Condo Fees) ÷ Gross Monthly Income] × 100
GDS worked example
Let’s calculate the GDS ratio for a household with the following details:
- Gross annual household income: $120,000 ($10,000/month)
- Mortgage payment (principal + interest): $2,200/month
- Property taxes: $350/month
- Heating costs: $150/month
- Condo fees: $500/month (50% = $250 included)
GDS = ($2,200 + $350 + $150 + $250) ÷ $10,000 × 100
GDS = $2,950 ÷ $10,000 × 100 = 29.5%
This household passes the GDS test with room to spare, since 29.5% is well below the 39% maximum. The $1,050 gap between $2,950 and $3,900 (39% of $10,000) represents remaining capacity for higher housing costs.
Total Debt Service (TDS) calculation
Total Debt Service (TDS) Ratio = [(GDS Housing Costs + Other Monthly Debt Payments) ÷ Gross Monthly Income] × 100
The maximum TDS ratio is 44%, though without mortgage insurance, some lenders may require a lower ratio in the 40%–42% range.
TDS worked example
Using the same household as above, now adding other debts:
- Monthly housing costs (from GDS): $2,950/month
- Car loan payment: $450/month
- Student loan payment: $200/month
- Credit card minimum payment: $150/month
- Gross monthly income: $10,000
TDS = ($2,950 + $450 + $200 + $150) ÷ $10,000 × 100
TDS = $3,750 ÷ $10,000 × 100 = 37.5%
This household also passes the TDS test, since 37.5% is below the 44% maximum. However, the margin is tighter. If this household had an additional $650/month in debt, they would hit the 44% limit.
What is included in housing costs (PITH)?
When lenders calculate your GDS, they include the following housing costs:
| Component | Description | Example Monthly Amount |
|---|---|---|
| P — Principal | The portion of your mortgage payment that reduces the loan balance | $900 |
| I — Interest | The interest component of your mortgage payment | $1,300 |
| T — Taxes | Monthly property taxes (annual amount ÷ 12) | $350 |
| H — Heating | Estimated monthly heating costs (lenders may use a standard estimate) | $150 |
| 50% of Condo Fees | If applicable — only 50% of monthly condo or strata fees are included | $250 (of $500) |
Note: Lenders calculate the mortgage payment at the stress test qualifying rate, not your actual contract rate. This means your GDS and TDS for qualification purposes will be higher than your actual ratio once you start making payments.
How different debt levels affect your maximum home price
The following table illustrates how existing monthly debt payments affect your TDS ratio and maximum affordable home price, assuming a $100,000 household income, 5.00% mortgage rate, 25-year amortization, and 39% GDS / 44% TDS limits:
| Monthly Debt Payments | TDS at Max GDS Mortgage | Maximum Mortgage Amount | Approximate Max Home Price (5% down) |
|---|---|---|---|
| $0 | 29.5% | ~$510,000 | ~$537,000 |
| $300/month | 33.1% | ~$510,000 | ~$537,000 |
| $500/month | 35.5% | ~$510,000 | ~$537,000 |
| $800/month | 39.1% | ~$510,000 | ~$537,000 |
| $1,000/month | 41.5% | ~$480,000 | ~$505,000 |
| $1,200/month | 43.9% | ~$450,000 | ~$474,000 |
| $1,500/month | 44%+ (TDS exceeded) | ~$405,000 | ~$426,000 |
As shown above, your existing debts reduce the mortgage you qualify for once your TDS ratio becomes the limiting factor. Paying down debt before applying for a mortgage can significantly increase your buying power.
In addition to debt service ratios, it is also important to understand other costs associated with purchasing a home, such as land transfer tax and closing costs.
How to improve your debt service ratios
If your ratios are too high to qualify for the mortgage you want, here are specific strategies with examples:
1. Pay down existing debt
Eliminating a $400/month car payment improves your TDS by 4.8% (on a $100,000 income). This alone could increase your qualifying mortgage amount by $60,000 to $75,000.
2. Increase your income
Adding a co-borrower with $50,000 in income increases your qualifying base from $100,000 to $150,000, significantly improving both GDS and TDS ratios.
3. Choose a less expensive home
A lower home price means a smaller mortgage, which directly reduces both your GDS and TDS ratios. Use the mortgage affordability calculator to find the right price range.
4. Secure a lower interest rate
Even a 0.25% difference in your mortgage rate can change your monthly payment by $30 to $50 per $100,000 of mortgage. Check current mortgage rates to find the best deal.
5. Extend the amortization period
Choosing a 30-year amortization instead of 25 years reduces your monthly payment by approximately 10%–12%, improving your ratios. Note that this option is only available for conventional (uninsured) mortgages with at least 20% down payment.
6. Consolidate high-interest debts
If you have multiple debt payments, consolidating them into a single personal loan or line of credit at a lower rate may reduce your total monthly obligations and improve your TDS.
Related calculators
- Mortgage Affordability Calculator — Find out how much home you can afford
- Mortgage Stress Test Calculator — See how the qualifying rate affects your ratios
- Mortgage Qualification Calculator — Check your full mortgage eligibility
- Mortgage Calculator — Calculate your mortgage payment at any rate
- Mortgage Insurance Calculator — Estimate CMHC insurance premiums
- Land Transfer Tax Calculator — Estimate your land transfer tax
- Closing Costs Calculator — Budget for all costs beyond your mortgage
- Income Needed to Afford a Home Calculator — Find what salary you need for your target price