25 October 3012
These ratios are used by all mortgage lenders for determining the maximum loan amount you can get.
Gross debt service (GDS) is the percentage of your gross income (before income tax deductions), necessary to cover your housing costs, including mortgage payments, property taxes and heating. In case of condominium GDS calculation will also include 50% of condo fee. As a rule, the maximum GDS ratio is 32% of your gross income (see exception above).
Total debt service ratio (TDS) isthe percentage of gross income (before income tax deductions) necessary to cover your housing costs, including mortgage payments, property taxes, heating and 50% of condo fee, plus some other debts, e.g. credit card payments, car payments or credit lines minimum monthly payments. As a rule, the maximum TDS ratio is 40% of the home owner’s gross income (see exception above).
Calculating the GDS and TDS ratios
The mortgage rate used for your qualification depends on many factors, including the amount of your down payment, rate type, term etc. For example, if you can’t afford a 20% down payment and are applying for a variable mortgage or a fixed mortgage with the term of less than 5 years, financial institutions will use the five-year fixed interest rate (Mortgage Qualifying Rate – MQR) for your qualification, even if you get a shorter term with a lower rate.