Lenders use two ratios to decide how much mortgage you can carry. Both compare your monthly debt payments with your gross income, which is your income before tax. The stress test and the lender’s own rules decide which mortgage payment goes into the calculation.
GDS: housing costs
The gross debt service (GDS) ratio is your housing costs divided by your gross income. Housing costs are the mortgage principal and interest, property tax and heating, usually called PITH. For a condo, half of the condo fees are usually included. The usual maximum is 39%.
TDS: all debts
The total debt service (TDS) ratio adds everything else you pay each month: car loans, student loans, credit card and line of credit payments, and other loans. The usual maximum is 44%. Lenders often count a percentage of a revolving balance rather than only the minimum payment, so ask how yours will be counted.
A worked example
Suppose your household earns $100,000 a year before tax, or about $8,333 a month. At 39%, housing costs can be up to about $3,250 a month. At 44%, all debts can be up to about $3,667 a month. If you pay $600 a month on a car loan, the TDS limit leaves about $3,067 for housing. That is less than the GDS limit, so the lower figure applies, and the car loan cuts the housing payment you can qualify for from $3,250 to about $3,067 a month.
The stress test comes first
Lenders qualify you at a stress-tested rate, which is the higher of your contract rate plus 2% and the benchmark rate. The mortgage stress test guide explains the rule. The stress-tested payment is the one that counts in both ratios.
Lenders can set stricter limits
The 39% and 44% figures are the usual maximums, not guarantees. Lenders set their own limits, and some use lower ones for uninsured mortgages. Ask your lender for the ratios it uses before you make an offer.
Try your own numbers
The debt service ratio calculator works out both ratios. The affordability calculator turns them into a maximum price, and the debt payoff calculator shows how paying down the debts in your TDS changes what you can qualify for.
Try the debt service ratio calculator →
Official source
OSFI · Residential mortgage underwriting
This guide explains general rules. Confirm your figures with your lender, lawyer, or the official source before you act.