What are GDS and TDS ratios?
When a Canadian lender evaluates your mortgage application, they use two debt service ratios to determine how much you can afford to borrow. The Gross Debt Service (GDS) ratio measures your housing costs against your income. The Total Debt Service (TDS) ratio adds all of your other monthly debt obligations to that calculation. Both are expressed as a percentage of your gross monthly income, and both must fall within the limits set by OSFI's B-20 guideline to qualify for a mortgage at a federally regulated lender.
Understanding these ratios is essential because they directly determine your maximum purchase price. Even if your credit score is excellent and your income is strong, exceeding either ratio will result in a declined application — or a reduced maximum loan amount.
GDS ratio — housing costs only
The GDS ratio compares your total monthly housing costs to your gross monthly income. The formula is:
GDS = (Mortgage payment + Property tax + Heating + 50% of condo fees) ÷ Gross monthly income
Under OSFI B-20 guidelines, the GDS ratio must not exceed 39%. This means your combined housing costs cannot consume more than 39 cents of every dollar of gross income.
| GDS component | What counts | Notes |
|---|---|---|
| Mortgage payment | Principal + interest at stress test rate | Calculated at the qualifying rate, not contract rate |
| Property tax | Annual property tax ÷ 12 | Actual tax bill or lender estimate |
| Heating costs | Actual or estimated monthly heating | OSFI uses $150/month as a standard estimate |
| Condo/strata fees | 50% of monthly fees | Only 50% is included; applies to condos and strata units |
GDS ratio worked example
Household income: $130,000/year → $10,833/month gross. Home: $700,000 with 10% down. Rate: 4.20%, stress test rate: 6.20%. Mortgage: $649,530 over 25 years at 6.20% = approximately $4,440/month payment. Property tax: $583/month (1.0%). Heating: $150/month.
GDS = ($4,440 + $583 + $150) ÷ $10,833 = $5,173 ÷ $10,833 = 47.8% — exceeds the 39% limit, so this household would not qualify for this home under GDS alone at the stress test rate.
At the contract rate of 4.20%, the qualifying payment is approximately $3,500/month, giving a GDS of ($3,500 + $583 + $150) ÷ $10,833 = 38.2% — just under the limit. This illustrates how the OSFI stress test compresses affordability by forcing qualification at a higher payment level.
TDS ratio — all debts included
The TDS ratio adds all other monthly debt obligations to the GDS components and compares the total to gross income. The formula is:
TDS = (GDS components + Car loans + Student loans + Credit card minimums + Other debts) ÷ Gross monthly income
The TDS ratio must not exceed 44%. Because TDS includes all debt, it penalises borrowers carrying significant consumer debt. A $600/month car payment, for example, directly reduces the mortgage you can qualify for — the lender must keep TDS at or below 44%, so every dollar of debt reduces mortgage room by roughly $1 in monthly payment capacity.
US equivalent: DTI ratios
US lenders use Debt-to-Income (DTI) ratios rather than GDS and TDS. The structure is similar but the limits and components differ slightly. US conventional lenders apply a front-end DTI of 28% (housing costs only) and a back-end DTI of 36% (all debts). The CalcHomeRate affordability calculator applies the correct ratio system for each country based on the country toggle.
Strategies to improve your GDS and TDS ratios
- Reduce consumer debt before applying: Paying off a car loan or lowering credit card balances directly improves your TDS ratio. Even eliminating a $300/month debt obligation can increase your maximum mortgage by $50,000 to $70,000 in some scenarios.
- Increase your down payment: A larger down payment reduces the mortgage amount and therefore the monthly payment, directly lowering both GDS and TDS. It may also remove CMHC insurance, further reducing the payment.
- Add a co-borrower: Including a second income in the application increases the denominator in both ratios, allowing a higher mortgage payment to still fit within the 39%/44% limits.
- Choose a lower-tax property: Property tax varies significantly by province, municipality, and property type. Moving to a property in a lower-tax municipality — or from a house to a condo — can meaningfully reduce the GDS ratio if condo fees are modest.
- Extend the amortization period: For uninsured mortgages, a 30-year amortization produces lower monthly payments than 25 years, reducing GDS and TDS. The long-term interest cost is higher, but it can make the difference in qualifying.
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