Skip to main content

GDS and TDS Ratios Explained for Canadian Mortgages 2026: Formulas & Limits

Updated

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

The formula

$$GDS = \frac{\text{Mortgage Payment} + \text{Property Taxes} + \text{Heating} + \text{50% Condo Fees}}{\text{Gross Annual Income}} \times 100$$

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

The formula

$$TDS = \frac{\text{Housing Costs (GDS)} + \text{All Other Debt Payments}}{\text{Gross Annual Income}} \times 100$$

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)
🏠

Get the best mortgage rate in Canada — in minutes

Homewise negotiates with 30+ banks and lenders for you. Free, 5 minutes, no credit check.

Get Started →

Affiliate disclosure: WealthNorth may earn a commission if you apply through this link. This does not affect your rate or cost.