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Mortgage Glossary

What is Debt Service Ratio?

A debt service ratio measures the share of your gross income that goes toward debt and housing payments. Lenders use two: the gross debt service (GDS) ratio for housing costs and the total debt service (TDS) ratio for all debts. Common Canadian guidelines are roughly 39% for GDS and 44% for TDS.

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Quick answer

A debt service ratio measures the share of your gross income that goes toward debt and housing payments. Lenders use two: the gross debt service (GDS) ratio for housing costs and the total debt service (TDS) ratio for all debts. Common Canadian guidelines are roughly 39% for GDS and 44% for TDS.

Also known as: debt service ratios, DSR

Key points

  • GDS measures housing costs as a share of gross income
  • TDS adds all other debt payments to the housing costs
  • Common guidelines are about 39% GDS and 44% TDS
  • Lower ratios improve your affordability and approval odds
  • Paying down other debts can lower your TDS
  • Ratios work alongside the stress test in qualification

Debt Service Ratio explained

Debt service ratios are affordability measures lenders use to decide how much mortgage you can carry. The gross debt service (GDS) ratio compares your housing costs, mortgage payment, property tax, heating, and applicable condo fees, to your gross income. The total debt service (TDS) ratio adds all your other debt payments.

As a general guide, lenders look for a GDS around 39% and a TDS around 44%, though exact limits vary by lender and insurer. Staying within these ratios is a key part of mortgage qualification alongside the stress test.

What a Debt Service Ratio is for

Debt service ratios help lenders confirm you can realistically afford a mortgage on top of your existing obligations. By capping the share of income spent on debt, they reduce the risk of a borrower becoming over-extended and defaulting.

How it can help you

Knowing your ratios before you apply shows how much home you can comfortably afford and where to trim debt to qualify. Lenderoo compares 40+ lenders for free, and because lenders apply ratios differently, shopping around can find one whose limits fit your numbers.

When it comes up

A couple calculates their GDS and TDS before house hunting. Seeing their TDS is near the limit, they pay off a car loan to lower the ratio, which increases the mortgage amount they can qualify for.

Example: Calculating GDS

The Lees earn $8,000 gross per month. Their proposed housing costs, mortgage, property tax, and heating, total $2,800 per month.

Their GDS ratio is $2,800 divided by $8,000, which is 35%. That sits below the roughly 39% guideline, so their housing costs are within typical limits. The lender then checks their TDS by adding other debts like car loans and credit cards.

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Questions & answers

Debt Service Ratio: frequently asked questions

Common questions Canadians ask about debt service ratio.

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Related mortgage terms

GDS (Gross Debt Service) Ratio

Percentage of income needed for housing costs.

Read definition

TDS (Total Debt Service) Ratio

The percentage of your gross monthly income needed to cover housing costs plus all other debt payments.

Read definition

Stress Test

A federal qualifying rule that requires borrowers to prove they could afford payments at a higher rate than their actual contract rate.

Read definition

Pre-Approval

Conditional approval for a mortgage before house hunting.

Read definition

Credit Score

A numerical rating of creditworthiness

Read definition
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