What is Debt-to-Income Ratio?
| Calculation |
|
| DTI = |
(Monthly debt payments ÷ Gross monthly income) × 100 |
Example
| Factor |
Amount |
| Monthly debt payments |
$2,000 |
| Gross monthly income |
$6,000 |
| DTI |
33% |
Types of Debt Ratios
Canada’s Two Key Ratios
| Ratio |
What It Measures |
| GDS |
Housing costs only |
| TDS |
All debt payments |
GDS (Gross Debt Service)
| Includes |
|
| Mortgage payment |
P+I |
| Property tax |
Monthly |
| Heating costs |
Estimated |
| 50% of condo fees |
If applicable |
| Formula |
GDS = Housing costs ÷ Gross income |
| Maximum |
39% for most lenders |
TDS (Total Debt Service)
| Includes |
|
| All of GDS |
Housing |
| + Car payments |
Monthly |
| + Credit card minimum |
Usually 3% |
| + Student loans |
Monthly |
| + Other loans |
All payments |
| Formula |
TDS = All debt payments ÷ Gross income |
| Maximum |
44% for most lenders |
How to Calculate Your DTI
Step 1: List Monthly Debt Payments
| Debt |
Monthly Payment |
| Mortgage/Rent |
$ |
| Car loan |
$ |
| Credit card minimum |
$ |
| Student loan |
$ |
| Personal loan |
$ |
| Line of credit |
$ |
| Other debt |
$ |
| Total |
$ |
Step 2: Calculate Gross Monthly Income
| Income Source |
Monthly |
| Salary (before tax) |
$ |
| Spouse income |
$ |
| Side income |
$ |
| Other income |
$ |
| Total Gross |
$ |
Step 3: Calculate
| Calculation |
|
| Total debt payments |
÷ |
| Gross income |
× 100 |
| Your DTI |
% |
DTI Benchmarks
General Financial Health
| DTI |
Rating |
| Under 28% |
Excellent |
| 28-35% |
Good |
| 36-42% |
Acceptable |
| 43-49% |
High |
| 50%+ |
Very high |
Mortgage Qualification
| Ratio |
Maximum |
| GDS |
39% |
| TDS |
44% |
| Some lenders |
May allow higher with good credit |
Example: Are You Qualified?
| Income |
$7,000/month gross |
| GDS limit (39%) |
$2,730 max housing |
| TDS limit (44%) |
$3,080 max all debt |
DTI by Scenario
Scenario 1: Single, Good Health
| Factor |
Amount |
| Gross income |
$5,500/month |
| Rent |
$1,600 |
| Car payment |
$400 |
| Student loan |
$250 |
| Credit card |
$150 |
| Total debt |
$2,400 |
| DTI |
44% |
Verdict: At the limit for mortgage approval.
Scenario 2: Dual Income, Moderate Debt
| Factor |
Amount |
| Combined income |
$10,000/month |
| Mortgage |
$2,200 |
| Property tax |
$400 |
| Car loan |
$500 |
| Total debt |
$3,100 |
| DTI |
31% |
Verdict: Good position.
Scenario 3: High Debt
| Factor |
Amount |
| Gross income |
$6,000/month |
| Rent |
$1,800 |
| Car |
$600 |
| Credit cards |
$500 |
| Student loan |
$400 |
| Personal loan |
$300 |
| Total debt |
$3,600 |
| DTI |
60% |
Verdict: Dangerously high, limits options.
Why DTI Matters
For Mortgage Approval
| High DTI |
Consequence |
| Over limits |
Denied mortgage |
| Near limits |
Smaller approval |
| Lower mortgage |
Less house |
For Financial Health
| High DTI |
Impact |
| Over 50% |
Little room for savings |
| Over 43% |
Financial stress |
| Under 36% |
Breathing room |
| Under 28% |
Significant flexibility |
Improving Your DTI
Two Approaches
| Method |
Action |
| Reduce debt |
Pay off loans, cards |
| Increase income |
Raise, promotion, side hustle |
Reducing Debt
| Strategy |
Impact |
| Pay off credit cards |
Immediate DTI reduction |
| Pay off car loan |
Significant reduction |
| Consolidate at lower rate |
Lower payment |
| Debt avalanche |
Fastest interest savings |
Example: Paying Off Car
| Before |
After |
| Income: $5,500 |
Income: $5,500 |
| Total debt: $2,400 |
Total debt: $2,000 |
| DTI: 44% |
DTI: 36% |
| Improvement |
8 points |
Increasing Income
| Method |
Impact |
| Ask for raise |
Permanent DTI improvement |
| Side hustle |
Additional income |
| Spouse returns to work |
Doubles income |
Example: Income Increase
| Before |
After |
| Income: $5,500 |
Income: $6,500 |
| Total debt: $2,400 |
Total debt: $2,400 |
| DTI: 44% |
DTI: 37% |
| Improvement |
7 points |
DTI vs Credit Utilization
Different Measures
| Metric |
Compares |
| DTI |
Debt payments vs income |
| Credit utilization |
Balance vs credit limit |
Credit Utilization
| Calculation |
|
| Balance |
÷ Credit limit |
| $3,000 balance |
÷ $10,000 limit |
|
= 30% utilization |
Impact on Credit Score
| Utilization |
Impact |
| Under 30% |
Good |
| Under 10% |
Excellent |
| Over 30% |
Hurts score |
| Over 75% |
Significant damage |
DTI for Different Goals
Mortgage Application
| Target |
Ratios |
| GDS |
Under 39% |
| TDS |
Under 44% |
| Ideal |
Under 32%/36% |
Car Loan
| Target DTI |
Rating |
| Under 40% |
Good approval odds |
| 40-50% |
May need higher rate |
| Over 50% |
May be declined |
Personal Loan
| Lender Type |
DTI Preference |
| Banks |
Under 40% |
| Online lenders |
May accept higher |
| Credit unions |
Varies |
Red Flags
Warning Signs
| Situation |
Action Needed |
| DTI over 50% |
Immediate attention |
| Using debt for basics |
Emergency |
| Minimum payments only |
Debt spiral risk |
| Declined for credit |
Reassess budget |
DTI Calculator Worksheet
Your Calculation
| Debts |
Monthly |
| Housing |
$ |
| Car |
$ |
| Credit cards |
$ |
| Student loans |
$ |
| Other |
$ |
| Total A |
$ |
| Income |
Monthly |
| Primary |
$ |
| Secondary |
$ |
| Other |
$ |
| Total B |
$ |