GDS and TDS mortgage ratios explained — with real numbers

GDS and TDS are the two debt service ratios that every A-lender in Canada uses to assess whether a borrower can afford the mortgage they are applying for. If you are placing deals with insured or conventionally underwritten lenders, you need to understand exactly how these ratios are calculated and what the limits mean in practice.

This is not complicated math — but it is math that has to be done right. An error in your GDS or TDS calculation can mean the difference between an approval and a decline, or between a client qualifying for the home they want and needing to scale back.

What GDS measures

Gross Debt Service (GDS) measures housing costs as a percentage of gross income. It answers the question: how much of what the borrower earns before tax goes toward the costs of owning this specific property?

The GDS formula is:

Breaking down the components

Principal and Interest (P&I): Calculated using the qualifying rate, not the contract rate (more on this below). For a $500,000 mortgage over a 25-year amortization at 5.25%, the monthly P&I payment is approximately $2,997.

Property taxes: Use the actual annual property tax for the property divided by 12 for the monthly figure. If property taxes are not yet known (pre-construction, for example), lenders typically use a default estimate — often around $250–$350/month depending on the lender and the market.

Heat: Most lenders use a standardized monthly heat estimate rather than the actual utility bill. The common default is $150/month, though some lenders use $100 or $200. Check your specific lender's policy.

50% of condo fees: For condominiums, half of the monthly maintenance fee is included in GDS. The full 100% is included in TDS.

Worked GDS example

What TDS measures

Total Debt Service (TDS) adds all other monthly debt obligations to the GDS calculation. It answers: how much of the borrower's gross income goes toward all debt payments combined?

What counts in TDS

Every recurring debt obligation must be included:

• Car loans and car leases (minimum monthly payment)
• Credit card balances (typically 3% of the outstanding balance per month, even if the borrower pays in full)
• Student loans (minimum monthly payment)
• Lines of credit (typically 3% of balance, or interest-only minimum depending on lender)
• Other mortgages (rental properties, second homes)
• Child or spousal support obligations

Worked TDS example

The qualifying rate and how it affects GDS/TDS

The mortgage stress test requires lenders to calculate GDS and TDS using the greater of:

• The contract rate + 2%, or
• 5.25% (the regulatory floor)

This means the P&I payment in the GDS and TDS formulas is based on a rate that is almost certainly higher than what the borrower will actually pay. If the contract rate is 4.89%, the qualifying rate is 6.89% (4.89% + 2%). If the contract rate is 3.0%, the qualifying rate is 5.25% (the floor applies).

The stress test was introduced to ensure borrowers can still afford payments if rates rise after they sign. For agents, this means the qualifying mortgage amount is always lower than the maximum mortgage the contract rate would support. Borrowers are sometimes surprised to learn they qualify for less than expected — understanding why lets you explain it clearly rather than letting them hear it as bad news with no context.

GDS and TDS limits by lender type

The 39% GDS and 44% TDS limits apply to insured mortgages (down payment under 20%) and are set by CMHC, Sagen, and Canada Guaranty. For conventional mortgages (down payment 20% or more), most A-lenders use the same limits by policy, though they have more flexibility.

B-lenders are generally more flexible on ratios. Many will approve deals with TDS in the 45–50% range with compensating factors. Private lenders typically do not use GDS/TDS ratios at all — they lend primarily on the asset (the property's value and LTV) rather than income ratios.

Rental income in GDS and TDS

For properties with rental income, lenders typically include a portion of that rental income to offset the carrying costs. Most A-lenders will use 50% of the gross rental income (called rental offset) to reduce the GDS and TDS figures. Some will use 80% for well-documented rental properties. Never include 100% of rental income unless your specific lender explicitly allows it — doing so will result in an inflated qualifying scenario that the lender will not accept.

Getting GDS and TDS right on every file is a fundamental underwriting skill. Work through these calculations manually before submitting, so you know exactly where the file stands before the lender's system confirms or declines it.