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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