What is the GDS ratio and how is it calculated?
The Gross Debt Service (GDS) ratio is the percentage of your gross monthly income that goes toward housing costs. It includes mortgage principal and interest, property taxes, heating costs, and 50% of condo fees (if applicable). GDS = housing costs ÷ gross monthly income × 100. CMHC (Canada Mortgage and Housing Corporation) requires a GDS ratio of 39% or less for insured mortgages. Most lenders prefer GDS below 32%.
What TDS ratio do Canadian lenders require?
The Total Debt Service (TDS) ratio adds all other monthly debt payments (car loans, credit card minimums, student loans, lines of credit) to housing costs and divides by gross income. CMHC requires TDS of 44% or less for insured mortgages (those with less than 20% down payment). For conventional mortgages, lenders typically want TDS below 44%. A TDS above 44% generally means you will not qualify for an insured mortgage.
How can I lower my debt-to-income ratio?
Two ways: increase income or reduce debt. Practical strategies: (1) Pay down revolving debt (credit cards, lines of credit) — these have the highest minimum payments relative to balance; (2) Pay off car loans to eliminate that payment; (3) Consolidate multiple debts into a lower-payment loan; (4) Increase income through a raise, second job, or rental income; (5) Do not take on new debt before applying for a mortgage; (6) Consider a consumer proposal to reduce total debt if ratios are severely elevated.