The debt-to-income (DTI) ratio is a core metric Canadian mortgage lenders use to assess borrowing capacity. Lenders compute two distinct ratios: the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio. OSFI Guideline B-20 establishes maximums of 39% GDS and 44% TDS for mortgages issued by federally regulated financial institutions.
GDS and TDS Formulas
GDS = (Monthly mortgage P&I + Monthly property tax + Monthly heating + 50% of monthly condo fees) / Gross monthly income
TDS = (GDS components + All other monthly debt payments) / Gross monthly income
Other debts in TDS include: car loan and lease payments, personal loan payments, student loan payments, credit card minimum payments, line of credit minimum payments, child or spousal support payments.
Stress Test Interaction
OSFI’s stress test (Guideline B-20) requires lenders to qualify borrowers at the higher of: the contract rate plus 2 percentage points, or the minimum qualifying rate (MQR) of 5.25%. This means the mortgage payment used in the GDS/TDS calculation is the theoretical payment at the stress-test rate, not the actual contract payment. A borrower taking a 5-year fixed mortgage at 5.5% must qualify as if the rate were 7.5%.
Example: A $500,000 mortgage at 5.5% over 25 years has a monthly payment of approximately $3,063. At the 7.5% stress-test rate, the qualifying payment becomes approximately $3,676. The lender uses $3,676 in the GDS/TDS numerator.
OSFI Guideline B-20 Thresholds
| Ratio | OSFI Maximum | Strong Threshold |
|---|---|---|
| GDS | 39% | Below 32% |
| TDS | 44% | Below 36% |
Canadian Household Debt Context
Statistics Canada reports household credit market debt as a percentage of disposable income. As of Q3 2024, Canadian households carried approximately $1.80 in debt for every $1.00 of annual disposable income (180% ratio). This macro-level DTI differs from the lender’s monthly payment ratios and reflects accumulated mortgage, consumer credit, and other debt against after-tax income.
The Bank of Canada monitors this macro ratio as a vulnerability indicator in its Financial System Review. A high macro DTI means households are more sensitive to interest rate increases, as a larger proportion of income must service debt.
Improving Your TDS Ratio
Reducing total monthly debt payments or increasing gross income both lower the TDS ratio. Paying off a $400/month car loan improves TDS by 400/income. For a borrower with $7,000 gross monthly income, eliminating a $400 car payment reduces TDS by 5.7 percentage points, which could be the difference between qualifying and not qualifying.
Credit card balances contribute minimum payments to TDS even if paid in full each month. Lenders typically calculate the minimum at 3% of the outstanding balance. A $10,000 credit card balance adds $300/month to the TDS numerator regardless of payment behaviour.
Source
OSFI Guideline B-20 (Residential Mortgage Underwriting Practices and Procedures); Statistics Canada Table 38-10-0235-01 (Household debt); Bank of Canada Financial System Review.
Frequently asked questions
- What is the debt-to-income ratio in Canada?
- The debt-to-income (DTI) ratio compares total monthly debt payments to gross monthly income. Canadian mortgage lenders use two related ratios: the Gross Debt Service (GDS) ratio (housing costs as a percentage of gross income) and the Total Debt Service (TDS) ratio (all debt payments as a percentage of gross income). OSFI Guideline B-20 sets maximums of 39% GDS and 44% TDS for conventional mortgages.
- What is the maximum TDS ratio allowed for a Canadian mortgage?
- Under OSFI Guideline B-20, federally regulated lenders must not approve mortgages where the TDS ratio exceeds 44% of gross income. Many lenders apply stricter internal limits of 40% to 42%. Provincial credit unions and private lenders may apply different standards.
- How do I calculate my GDS ratio?
- GDS = (monthly mortgage principal and interest + property taxes + heating + 50% of condo fees) / gross monthly income. For example, if PITH + 50% condo = $2,200 and gross income = $7,000, GDS = 2,200/7,000 = 31.4%. The maximum allowed under B-20 is 39%.
- How do I calculate my TDS ratio?
- TDS = (GDS components + all other monthly debt payments) / gross monthly income. Other debts include car loan payments, student loan payments, credit card minimum payments, personal loan payments, and child support. For example, if GDS components = $2,200, other debts = $800, and gross income = $7,000, TDS = 3,000/7,000 = 42.9%, which is within the 44% limit.
- Does the stress test affect the GDS/TDS calculation?
- Yes. OSFI's mortgage stress test requires qualifying at the higher of the contract rate plus 2%, or the minimum qualifying rate (MQR) of 5.25%. The stress test uses the higher qualifying rate to compute the theoretical mortgage payment for GDS/TDS purposes, meaning borrowers must qualify at a payment higher than they will actually make at the contract rate.
- What counts as debt in the TDS calculation?
- TDS includes: mortgage principal and interest, property taxes, heating costs, 50% of condo fees, car loan and lease payments, personal loan payments, student loan payments, credit card minimum monthly payments (typically 3% of the balance), line of credit minimum payments, child support, and spousal support obligations.
- What is a good debt-to-income ratio in Canada?
- For mortgage qualification purposes, TDS below 36% is considered strong, 36% to 44% is acceptable, and above 44% will not qualify at federally regulated lenders. For overall financial health, Statistics Canada data shows Canadian household debt-to-income (total debt to annual disposable income) reached approximately 180% in 2024, a figure economists monitor as a macro risk indicator distinct from the lender's monthly payment ratios.
- Does the DTI ratio affect my credit score in Canada?
- DTI ratio directly influences mortgage qualification but does not appear as a factor in Equifax or TransUnion credit scores. Credit scores reflect payment behaviour, utilisation, and account history. However, lenders review both credit score and DTI ratio as part of the underwriting decision.
- Can I improve my TDS ratio before applying for a mortgage?
- Paying down revolving debt (credit cards, lines of credit) reduces monthly minimum payments included in TDS. Eliminating a car loan or personal loan payment before applying also reduces TDS. Increasing gross income (through employment change, bonus, or rental income with documentation) directly lowers the ratio.
- How is rental income treated in the DTI calculation?
- For owner-occupied properties with a rental unit, lenders typically add 50% to 80% of rental income to gross income in the GDS/TDS denominator, depending on their policy. Investment property rental income may require a two-year history of declared rental income on T1 returns before lenders will include it.