GDS & TDS, Explained Simply
The two numbers lenders use to decide how much mortgage you can handle.
The quick version
Lenders look at two ratios to decide if you qualify.
GDS = your housing costs compared to your income.
TDS = your housing costs plus all other debts compared to your income.
Lower is better.
For insured mortgages (less than 20% down), the limits are GDS 39% max and TDS 44% max.
Rather skip the math? That is what I am here for. Book a call and I will run your numbers and show you exactly where you stand.
Love knowing how things work? Keep reading. Fair warning: there is some mortgage lingo and a little math ahead!
What is "debt servicing"?
It is simply your ability to keep up with all your monthly payments. Lenders measure it with two ratios: GDS and TDS.
GDS: Gross Debt Service
What it measures: the share of your monthly income that goes to your home.
What is included (lenders call it "PITH"):
Principal
Interest
Taxes (property taxes)
Heat
Plus 50% of condo fees, if you have them
The formula: GDS = (Principal + Interest + Taxes + Heat) ÷ Gross Monthly Income
TDS: Total Debt Service
What it measures: the share of your monthly income that goes to your home plus all your other debts.
Other debts include:
Car loans or leases
Lines of credit
Credit card payments
Student loans
Support payments
Any other payment you are contractually obligated to make
The formula: TDS = (Principal + Interest + Taxes + Heat + Other Debts) ÷ Gross Monthly Income
No other debts? Then your GDS and TDS are the same number. That is a great thing!
What are the limits?
Every lender has its own maximums. If your mortgage requires default insurance (usually less than 20% down), the limits are firm: GDS 39% and TDS 44%, and there are generally no exceptions.
If your mortgage is conventional (20% or more down), limits vary by lender and product. When it makes sense, I can advocate for you and may be able to get an exception to allow higher ratios.
One important detail: the stress test
When lenders calculate your principal and interest, the Government of Canada requires them to use a higher qualifying rate, not your actual rate. This applies to both fixed and variable mortgages. It is there to make sure you could still afford your payments if rates rise.
Let us see it in real life
Your situation: household income of $90,000/year ($7,500/month), and home costs (PITH) of $1,700/month.
Step 1: Your GDS
$1,700 ÷ $7,500 = 22.7%. Well under 39%. Looking good!
Step 2: Add your other debts
Car payment: $300
Child support: $500
Credit cards and line of credit: $900
Total other debts: $1,700/month
Step 3: Your TDS
$1,700 (home) + $1,700 (debts) = $3,400
$3,400 ÷ $7,500 = 45.3%. Over the 44% limit.
What this means: your housing costs alone are very affordable, likely less than you pay in rent today. But your other debts push you over the limit, so you would not qualify as things stand.
The good news: there are often solutions
Restructure your debt to lower your monthly payments
Use part of your down payment to pay down debt. For example, if you have saved 10%, you could put 5% down and use the other 5% to pay off some debts.
Plan ahead so you have time to make the right moves before you apply
Do not do this alone
Your situation is unique, and this example is just a starting point. You might get a handful of mortgages in your lifetime; I do this every day. Working with an experienced, independent mortgage professional gives you more options and a clear plan.
It is never too early to start the conversation. Reviewing your numbers early gives you time to put yourself in the strongest position. Let us look at your numbers together. We can start your pre-approval right away.
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