Gross Debt Service (GDS) ratio
GDS measures your housing costs as a percentage of your gross monthly income. Specifically: GDS = (mortgage payment + property taxes + heating + 50% of condo fees if applicable) / gross monthly income × 100%.
The ceiling for most Canadian lenders is 39% GDS for insured mortgages (down payment under 20%). Some lenders allow up to 35% for borrowers with weaker credit profiles, while strong-credit borrowers can sometimes stretch to 39% with mainstream lenders or even 44% with specialty lenders.
Working example. Monthly gross income $7,500, monthly housing costs (mortgage payment + tax + heat) $2,800. GDS = 2,800 / 7,500 = 37.3%. This file fits within the 39% ceiling and would qualify on GDS alone.
Total Debt Service (TDS) ratio
TDS measures all your monthly debt obligations as a percentage of gross income. TDS = (housing costs + monthly debts) / gross monthly income × 100%. Monthly debts include car loans, student loan payments, credit card minimums (typically calculated as 3% of total balance), personal loans, and any other recurring debt.
The ceiling for most Canadian lenders is 44% TDS for insured mortgages. Some lenders allow up to 50% for very strong files; specialty lenders can go higher.
Working example continued. Same borrower with $400/month in car payments and a $5,000 credit card balance (which counts as $150/month at 3%). TDS = (2,800 + 400 + 150) / 7,500 = 44.7%. This file FAILS TDS at the standard 44% ceiling — it would need to find a lender that goes to 45%, OR reduce monthly debts (pay off the car or the credit card) to bring TDS under 44%.
Why both ratios matter
Both ratios must be satisfied simultaneously. A file that passes GDS but fails TDS is declined. A file that passes TDS but fails GDS is also declined. The binding ratio (whichever fails first) determines your maximum mortgage size.
For most borrowers, GDS is the binding constraint — the housing payment is the biggest line in their budget, so reducing housing costs (smaller mortgage, larger down payment, longer amortization) is the lever that increases borrowing capacity.
For borrowers with significant non-housing debts (car loans, student debt, lines of credit), TDS is often the binding constraint. The fix is paying down debt before applying — every $300 of monthly debt eliminated frees up roughly $50,000 of mortgage capacity.
How the stress test interacts with these ratios
The federal stress test requires you to qualify at the higher of your contract rate plus 2%, or 5.25%. Critically, this qualifying rate is used in the GDS and TDS calculation — your housing payment is computed at the stress-test rate, not your actual rate.
So a borrower with a contract rate of 4.39% would have their GDS and TDS calculated using a 6.39% qualifying rate. This stretches the housing payment used in the calculation by roughly 25%, meaningfully reducing the maximum mortgage you qualify for.
The stress test is designed to ensure you can still afford the mortgage if rates rise during your term. It's a conservative test, and it means your true affordability (what you'd actually pay at your contract rate) is higher than what the stress-tested numbers suggest.
How to improve your ratios
Increase income: obvious but slow. A second income source, overtime documentation, or rental income from a property can be added to your income for ratio purposes.
Reduce monthly debts: the highest-leverage move. Paying off a car loan or eliminating credit card balances directly reduces TDS. Even consolidating multiple debts into one lower-rate payment helps.
Increase down payment: a larger down payment means a smaller mortgage, which means a smaller monthly payment, which means lower GDS and TDS.
Extend amortization: a 30-year amortization (when available) reduces your monthly payment by 10-15% vs a 25-year, dramatically improving ratios. Federal rules allow 30-year amortizations for first-time buyers and new-construction buyers as of December 2024.
Add a co-applicant: a spouse, parent, or other co-signer adds their income to yours for ratio purposes. Their debts also get added — only effective if their income/debt picture is better than yours.