Gross Debt Service (GDS) and Total Debt Service (TDS) are the two ratios Canadian lenders use to determine the maximum mortgage a borrower qualifies for. GDS includes only housing costs as a percentage of gross income; TDS adds all other debt payments. For insured mortgages, the limits are 39% GDS and 44% TDS. Uninsured mortgages have similar limits at most lenders, sometimes with slightly more flexibility.
GDS formula
GDS = (Mortgage payment + Property tax + Heat + 50% of condo or strata fees) / Gross household income
Mortgage payment is calculated at the OSFI qualifying rate (max contract + 2%, 5.25% floor), not the contract rate. All values are monthly. Heat is typically estimated at $100 to $200 per month for a single-family home; condo fees come from the listing.
TDS formula
TDS = (GDS housing costs + All other monthly debt payments) / Gross household income
“Other debt” includes minimum payments on credit cards, line of credit interest, car loans, student loans, child support, and any other debt the lender pulls from the credit bureau. For credit cards and lines of credit, the lender uses 3% of the outstanding balance as the assumed monthly payment, regardless of actual payment.
Limits for insured and uninsured mortgages
| Ratio | Insured (less than 20% down) | Uninsured (most lenders) |
|---|---|---|
| GDS | 39% | 39% to 42% |
| TDS | 44% | 44% to 50% |
Insured limits are set by CMHC, Sagen, and Canada Guaranty. Uninsured limits are set by individual lenders and vary by institution and borrower profile (a strong-credit borrower at a major bank may stretch to 50% TDS; a weaker-credit borrower at a credit union may be capped at 42%).
Worked example
Alex and Sam have combined gross income of $130,000 ($10,833/month). They want a $500,000 mortgage at a 4.75% contract rate, 25-year amortization. Property tax is $4,800/year ($400/month), heat $150/month, condo fee $400/month (50% counts = $200/month).
- Qualifying rate: max(4.75% + 2%, 5.25%) = 6.75%
- Qualifying mortgage payment ($500,000, 25-year, 6.75%): approximately $3,440/month
- GDS housing costs: $3,440 + $400 + $150 + $200 = $4,190/month
- GDS: $4,190 / $10,833 = 38.7% (under the 39% limit)
- Alex has a $400/month car loan and $20,000 line of credit (3% rule = $600/month). Total other debt: $1,000/month
- TDS: ($4,190 + $1,000) / $10,833 = 47.9% (over the 44% insured limit)
Alex and Sam pass GDS but fail TDS. They need to pay down the line of credit, sell the car, or reduce the mortgage size to get TDS to 44%.
What counts as gross income
Gross income for ratio purposes includes salary (T4 box 14), self-employment net income (typically requires 2-year average), rental income (50% to 100% depending on property and lender), pension income, government benefits with reasonable continuity (CPP, OAS, CCB), and consistent investment income. Non-recurring or volatile income (commission spikes, one-time bonuses, capital gains) is generally excluded or averaged.
For self-employed borrowers, lenders use net business income from the T1 (line 13500), often averaged over 2 years. Add-backs for amortization or one-time expenses may apply at some lenders. Self-employed borrowers may face stricter requirements or premium pricing.
Why uninsured ratios can exceed insured
Uninsured mortgages have less explicit regulatory ratio caps. The OSFI B-20 guideline focuses on the qualifying rate rather than fixed GDS/TDS limits for uninsured loans. Individual lenders set internal limits, often allowing strong-credit borrowers up to 50% TDS. The trade-off is loan size: uninsured mortgages require 20%+ down, so the dollar amount being approved is lower relative to home price.
Strategies to improve ratios
- Pay down credit card and line-of-credit balances. Each $10,000 of credit card debt adds $300 to assumed monthly payment.
- Increase down payment to lower mortgage size, which lowers the housing cost numerator.
- Pay off shorter-term debts (car loans with high monthly payments) before applying.
- Co-borrowers add their income, which can dramatically improve ratios if they have low debt.
- Extend amortization to 30 years if eligible (first-time buyers, new construction).
Frequently asked questions
- What is the GDS ratio limit?
- 39% for insured mortgages. Uninsured mortgages typically allow 39% to 42% depending on lender.
- What is the TDS ratio limit?
- 44% for insured mortgages. Strong-credit uninsured borrowers may stretch to 50% at major banks.
- What is the difference between GDS and TDS?
- GDS includes only housing costs (mortgage, tax, heat, half of condo fees). TDS adds all other debt payments — credit cards, car loans, lines of credit, student loans.
- How does my credit card balance affect TDS?
- Lenders use 3% of the outstanding balance as the assumed monthly payment, regardless of actual payment. A $10,000 balance adds $300 to assumed monthly debt.
- Is the contract rate or qualifying rate used in GDS?
- The qualifying rate (max contract + 2%, 5.25%) is used for ratio testing. The contract rate is what you actually pay.
- Does rental income count?
- Yes, but typically only 50% to 100% depending on property type and lender. Long-term rental of a separate dwelling is treated more favourably than short-term or basement rental.
- How do I improve my ratios?
- Pay down credit card and line-of-credit balances, pay off short-term debts, increase down payment, add a co-borrower, or extend amortization to 30 years if eligible.