GDS & TDS Calculator FAQs
A debt service ratio is a way of calculating a person’s ability to repay their debt. It measures an individual’s debt burden relative to their income. Expressing this relationship as a ratio allows the person conducting the analysis to quickly gauge a person’s ability to repay their debts. Lenders will calculate this ratio as part of their consideration of whether to approve a mortgage application.
-
GDS ratio is a measure of the proportion of your gross monthly income that is required to cover your monthly housing costs. The formula used is:
mortgage payment + property taxes + heating + 50% of condo fees (if applicable) / gross household income
Mortgage lenders cap the GDS ratio at 39% for prime mortgage borrowers. If your credit score is below 680, but above 620, many lenders will reduce the maximum GDS ratio to 35%.
-
The TDS ratio is a measure of the proportion of your gross monthly income that is required to cover your monthly housing costs plus other monthly debt payments, which include car loans, student loans, credit cards and other debts. The formula used is:
mortgage payment + property taxes + heating + 50% of condo fees (if applicable) + other debt payment obligations / gross household income.
If you do not have any other outstanding debts, your GDS and TDS ratios will be the same.
Mortgage lenders cap the TDS ratio at 44% for prime mortgage borrowers. If your credit score is below 680, but above 620, may lenders will reduce the maximum TDS ratio to 42%.
-
A lender will use the following sources of income when calculating your debt service ratios:
Employment income that is earned by you and your co-borrowers;
Other income such as self-employed income, investment income, bonus income, commission income, and part-time hourly income can be used provided there is a minimum two-year history;
Rental income can be included but different lenders and mortgage insurers may treat it differently;
Pension income, such as CPP, QPP, and OAS as well as private company pension amounts;
Spousal support payments.
The lenders will not use any income from social assistance of employment insurance.
-
GDS and TDS are important factors in mortgage applications because lenders want to make sure your income will be enough to cover your debt obligations. In combination with your credit score and the stability and amount of your income, the lenders use the GDS and TDS ratios to make an assessment of the likelihood that you can make the mortgage payments over time.
If you have a GDS ratio less than 39% and a TDS ratio less than 44% you may be able to qualify for the lowest available mortgages rates. If your ratios are above these limits, then you will either i) possibly qualify for a mortgage with a higher rate; and/or ii) have your mortgage application declined.
-
If your GDS ratio is too high, you can lower the ratio by increasing your down payment. The higher down payment results in a smaller mortgage which reduces the monthly mortgage payment. If you are unable to lower the GDS ratio this way, you may have to find a non-prime lender willing to provide a loan with a GDS ratio above 39%
If your TDS ratio is too high, the best remedy is to pay down some of the other debts that you have. Eliminating some of those debt balances will reduce the payment amounts for those debt obligations that are used in the TDS calculation. If you cannot bring your TDS ratio below 44% then you may have to find a non-prime lender.
If your debt ratios are too high, possible solutions include:
Providing a higher down payment – can fix a high GDS or TDS ratio;
Pay down some existing other debts – can fix the TDS ratio;
Find a co-borrower or co-signor. If they have good income and low debt, they can be used in combination with you to improve the overall debt ratios for the mortgage application;
Reduce your budget by finding a less expensive home that requires a smaller mortgage; or
Find a non-prime mortgage product that will carry a higher interest rate. Non-prime lenders can consider a mortgage application where the GDS and TDS ratios are higher than 39% and 44%, respectively.
-
You need to enter the information in the cells of the calculator. Note that the calculator will automatically update results every time you enter data or make a change to an existing entry.
Gross Annual Household Income
This is the gross income of a person, together with the gross income of all persons who intend to be co-borrowers on the same mortgage and permanently reside with such person in the house being financed. If you are in a salaried job, the lender will use your last years income as shown on your Notice of Assessment from the CRA. If part of your income was a bonus or other variable amount, they will use a two-year average of those amounts.
Monthly Mortgage Payment
Input your expected monthly mortgage payment. If you do not know this you can go to our Mortgage Payment Calculator here - Payment Calculator | Affordable Mortgage Loans Canada | Frankmortgage.com – to get an estimate of the payment. Note that you can try different payment amounts to help you understand how much mortgage you can afford and stay within the GDS and TDS limits.
Monthly Condo Fees
If you are looking to finance a condominium property, the condo fees need to be included. Input the monthly amount of condo fees that need to be paid. If you are considering a condominium property that is listed for sale you can find the monthly condo fees on the MLS listing for the property.
Monthly Heating Cost
If you know the monthly heating costs for the property enter this here. If you do not know the exact costs, then use the $100 per month estimate already entered.
Annual Property Taxes
If you are purchasing a property that is listed for sale, you can find the annual property tax number on the MLS listing for the property. If you are refinancing a property, then use the annual bill amount from your current property tax statement provided by the municipality. If you do not have a property identified yet, then use 1% of the property value your are considering as an estimate.
Credit Card Balances
Enter the current total outstanding balance of all credit cards belonging to the mortgage applicant(s). The calculator will calculate the monthly payment required based on the balance entered.
Line of Credit Balance
Enter the current total outstanding balance of all lines of credit belonging to the mortgage applicant(s). The calculator will calculate the monthly payment required based on the balance entered.
Car Loan/Lease Payments
Enter the total for all mortgage applicants of all loan or lease payments for cars, motorcycles, boats, etc.
Other Debt Payments
Enter the monthly payment amount for all mortgage applicants for other current debts such as student loans, investment loans, alimony payments, etc.
-
Not necessarily, but it will certainly help. While having high debt service ratios may be a reason to not be approved, having good debt service ratios is not a guarantee of being approved. The mortgage underwriter will still need to evaluate your employment, your down payment, the property, and various other things that the lender requires. It is never too early to investigate what you need to do to qualify for a mortgage. It is best to find out ahead of time if you need to save more for a larger down payment or pay down some existing debts to get your debt ratios in line with lender requirements.
-
Yes, at Frank Mortgage we have licensed agents that can help you understand the debt service ratios or this GDS/TDS Calculator and answer any other mortgage questions you may have. Our agents are non-commissioned and provide unbiased and fair advice to help you understand your mortgage needs.
Please call us at 1-888-850-1337 or book a free consultation with us here