GDS and TDS ratiosGDS와 TDS (부채 상환 비율)

What are they?

Lenders use two ratios to decide whether you can afford the monthly payments. Both are based on your gross (before-tax) household income.

GDS (Gross Debt Service ratio) is the share of your income that goes to the home: the mortgage payment (principal and interest), property tax, heating, and 50% of condo fees if it is a condo.

TDS (Total Debt Service ratio) is GDS plus the monthly payments on all your other debts: car loans, student loans, credit cards, lines of credit, and mortgages on other properties.

The federal regulation defines GDS as the percentage of gross annual income needed for the annual payments tied to the property, and TDS as the percentage needed for housing and all other debts.

What are the limits?

No law sets a number for uninsured mortgages. Many lenders use limits close to the insured ones, but they differ, and some allow more for strong credit or a large down payment. Ask your lender or mortgage broker what applies to you.

What numbers go in?

• The mortgage payment is calculated at the stress-test rate (the greater of your contract rate plus 2% or 5.25%), not at your real rate. So the ratio uses a bigger payment than you will actually make, which lowers what you can borrow.
• Property tax: the city’s annual tax divided by 12. For a new home the lender uses an estimate.
• Heating: each lender sets the amount it counts in its own policy (OSFI B-20). Ask your lender how it is set.
• Condo fees: CMHC counts 50%. For uninsured mortgages each lender sets its own policy, so it may count more.
• Income: gross household income. Bonuses, self-employment and rental income are treated differently by each lender (often a two-year average, or only part of it). Only income you can document counts.
• Other debts (TDS): payments on all other debts, such as car loans, student loans, credit cards and lines of credit. How card and credit line payments are counted, and how unused limits are treated, differs by lender, so ask.

Worked example

A couple with $120,000 gross household income ($10,000 a month) applies for a $450,000 mortgage on a Toronto condo. If the contract rate is 4.5%, the stress-test rate is 6.5%. Estimates for reference only.

At the real 4.5% rate the payment would be about $2,491, but qualifying uses $3,014 at 6.5%. If the car loan were just $100 higher, TDS would pass 44% and this mortgage would not be approved.

How to lower your ratios

• Pay off other debts first: in the example, without the $450 car loan, TDS drops to 38.6%, leaving more room under the 44% limit. Paying off a debt with a small balance but a large monthly payment can lower TDS a lot.
• Increase the down payment: a smaller mortgage means a smaller payment, so both ratios fall.
• Extend the amortization: 30 years instead of 25 lowers the monthly payment. On an insured mortgage, 30 years is only available to first-time buyers or for newly built homes.
• Apply together: a spouse or family member on the application adds their income, but also their debts.
• Trim credit limits: if your lender counts unused credit limits in TDS, closing or lowering them can help. Ask your lender first.

Things to watch

Being under the limit does not mean the payment is comfortable. 39% and 44% are shares of gross income; after tax, the real bite is much bigger. Child care, car costs and savings are not in the ratio. Redo the math with your own living costs.

Taking on new debt after pre-approval (a car lease, furniture financing, a new credit card) can push TDS over the limit at the final check before closing and cancel the approval. Do not add debt until you have closed.

If you need rental income to fit the ratios, each lender accepts a different share and method. CMHC publishes its own rental income rules, so check in advance.

Pre-construction

On a pre-construction condo the mortgage is set up at final closing, not when you sign. GDS and TDS are recalculated then, using that day’s income, debts, rates and tax estimates. A ratio that worked at signing can fail years later if rates rise or your income changes, so leave room when you sign the builder’s contract.