Mortgages: The importance of the GDS and TDS debt ratio

What is the debt ratio?

The debt ratio is a measure of the weight of your debts in relation to your income. It’s also known as the debt-to-income ratio. The aim of this measurement is to find out whether you have the capacity to repay a loan. So, every time you want to take out a loan, the lender calculates your debt ratio.

Specifically, for a first-time homebuyer, the debt-to-income ratio calculates the annual income required to make mortgage payments, plus other debts (if any). From another angle, the debt ratio calculates whether you have the capacity to make the mortgage payments on a home you’re considering, with your current income.

Lenders use two debt ratios: the Gross Debt Service Ratio (GDS) and the Total Debt Service Ratio (TDS). Here’s how to calculate them…

How to calculate the debt ratio?

To calculate your Gross Debt Service Ratio (GDS), add up your mortgage payments, property taxes, heating costs and 50% of condo fees (if applicable). Then divide this number by your annual income. Ideally, this ratio should be less than 32%.

To calculate your Total Debt Service (TDS) ratio, you need to add up your housing expenses (as in the GDS ratio),home insurance, credit card interest, car payments and other loans (student loans, personal loans, etc.). Then divide this number by your annual income. Ideally, this ratio should be less than 40%.

How to interpret the debt ratio results?

As a general rule, you should obtain a ratio of less than 32% for the Gross Debt Service Ratio (GDS) and 40% for the Total Debt Service Ratio (TDS). Your ability to repay your debts is considered excellent, and you should have no difficulty obtaining a mortgage.

However, these are guidelines and some lenders have different objectives. Even with a higher debt ratio, you can still get a mortgage, depending on your personal and financial situation.

For example, if you have a good credit rating, a stable income and a good credit history, most borrowers will accept higher ratios, up to the CMHC limits (39% for the GDS ratio and 44% for the TDS ratio).

However, the closer your debt ratio approaches 40%, the more of a risk you pose to lenders. You may have difficulty making your monthly payments. As a result, lenders may refuse you a mortgage or car loan with this level of debt.

What to do if you exceed the debt ratio limits?

In this case, you have several options. First, you can turn to second-tier lenders. These are generally a little more flexible in their application and approval process. However, even if you can be approved, your interest payments will be higher and you’ll pay more for your property.

Another option is to save more to increase your down payment. This will lower your monthly payments in the debt ratio calculation. Depending on your financial situation and the property you’re interested in, however, this may have a limited impact.

Often, the best option is toeliminate your debts. In fact, paying off your debts can often have a greater impact on your debt-to-income ratio. For example, paying off a $10,000 car loan can often have a greater impact than increasing your down payment by $10,000. Why? Because of the importance of monthly payments in mortgage approval.

That said, we recommend that you use calculation tools to find out the best option for you.

Find out more about debt ratios

Gross debt service ratio (GDS)

To calculate your GDS ratio, a bank or mortgage broker, such as nesto or Neo, calculates your ability to make your mortgage payments. First, the lender adds up your monthly mortgage payment, property taxes (municipal and school taxes) and heating costs. If you live in a condominium, 50% of the condo fees are also added. The lender then divides this number by your gross monthly income. If your GDS debt ratio is less than 32%, the lender concludes that you have an excellent capacity to pay your monthly housing costs.

Total debt service ratio (TDS)

The TDS ratio is similar to the GDS ratio. To calculate your TDS ratio, the lender calculates your ability to make your mortgage payments as well as your other monthly payments. This means adding up your monthly mortgage payment, property taxes (municipal and school taxes) and heating costs, as in the GDS ratio. But also your home insurance, credit card interest, car payments and other loans (e.g. student loan, personal loan, etc.). The lender then divides this number by your gross monthly income. If your TDS ratio is less than 40%, the lender concludes that you have an excellent ability to make your monthly payments… and that you’re on track for mortgage approval.

Tools to calculate your debt ratio

There are many mortgage calculators and tools available online. Among other things, these tools can be used to determine the purchase price of a home you can afford, based on your financial situation. For example, the Financial Consumer Agency of Canada (FCAC) offers a Mortgage Eligibility Tool that calculates your GDS and TDS debt-to-income ratios.

Why affordability calculators disagree

Two affordability calculators can show very different maximums for the same profile. The ratios don’t change; each tool’s assumptions do.

• The rate used: as of September 2026, banks must qualify you at the higher of 5.25% or your negotiated rate plus 2%, according to the Financial Consumer Agency of Canada (FCAC). A calculator that applies your contract rate, without this stress test, inflates the result.
• The ratio limits: some tools use 32% and 40%, others the 39% (GDS) and 44% (TDS) limits cited by the FCAC.
• The amortization: with a down payment under 20%, the maximum is 30 years for a first-time buyer or a new build, and 25 years in all other cases.
• Estimated costs: property taxes, heating and condo fees vary from one tool to another, and some leave them out.

Example with a $100,000 income

With a gross income of $100,000, or about $8,333 a month, the FCAC limits work out as follows:

• GDS limit (39%): $3,250 a month for housing
• TDS limit (44%): $3,667 a month for all your debts
• With a $300 monthly student loan: $3,367 remains for housing under TDS

In this case, GDS is what limits the loan. The $3,250 must cover the mortgage payment calculated at the qualifying rate, property taxes and heating. For a reliable figure, enter your actual costs in the FCAC Mortgage Qualifier Tool, then have the amount confirmed through a preapproval with a lender.

Bottom Line

To sum up, if you’re planning a major purchase, such as a house, it’s essential to know your debt ratio, using the GDS and TDS ratios. If these are too high, you represent a greater risk and your bank may refuse to grant you a mortgage. The good news? There are options for obtaining a mortgage, such as increasing your down payment or reducing your debts.

What is a good debt ratio?

To obtain a mortgage, an excellent debt ratio is no more than 32%, while a good ratio is between 32% and 36%. If your debt-to-income ratio is higher, you represent a greater risk to the lender, and may have difficulty obtaining a mortgage.

How to interpret the debt ratio?

Ideally, your debt ratio should be less than 32% for Gross Debt Service Ratio (GDS) and less than 40% for Total Debt Service Ratio (TDS). However, with a higher debt ratio, but within CMHC limits, you can still get a mortgage.

What is the ideal debt ratio?

The ideal debt ratio for obtaining a mortgage is a GDS ratio of less than 32% and a TDS ratio of less than 40%.

How to analyze a debt ratio?

The debt ratio is a measure of your ability to repay a loan. Banks and other lenders use two debt ratios: Gross Debt Service (GDS) and Total Debt Service (TDS). They then compare your ratios to industry standards.