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Debt Service Ratios

Understand debt service ratios in Canadian real estate — how GDS and TDS work, their thresholds, and how lenders use them to approve mortgages.

Debt Service Ratios

May 22, 2025


What are Debt Service Ratios?

Debt service ratios are financial metrics used by lenders to assess a borrower’s ability to manage mortgage payments in relation to their income.

Why Do Debt Service Ratios Matter in Real Estate?

In Canadian real estate, two primary ratios are used:

1. Gross Debt Service (GDS) Ratio:
  • Measures housing costs vs. gross income
  • Includes mortgage, property taxes, heating, and 50% of condo fees
  • Generally must be under 39%
2. Total Debt Service (TDS) Ratio:
  • Measures all debt obligations vs. gross income
  • Includes GDS plus other debts like car loans and credit cards
  • Generally must be under 44%

Lenders use these ratios to determine mortgage eligibility. Staying within these limits ensures that homeowners can afford their housing without becoming financially overextended.

Understanding debt service ratios helps buyers prepare for pre-approval, understand loan limits, and evaluate financial readiness.

Example of Debt Service Ratios in Action

A buyer with $6,000 monthly income and $2,100 in housing costs has a GDS of 35%. Including $500 in other debts, their TDS is 43%—within lender guidelines.

Key Takeaways

  • Used to evaluate mortgage affordability.
  • GDS focuses on housing costs; TDS includes all debts.
  • Lenders require ratios within specific limits.
  • Helps determine mortgage approval.
  • Essential part of financial readiness.

Related Terms

  • GDS
  • TDS
  • Mortgage Qualification
  • Pre-Approval
  • Lender Guidelines

Additional Terms

Construction Loan

A construction loan is a short-term, interim financing option used to fund the building or major renovation of a property, with funds disbursed in. more

Certificate of Occupancy

A certificate of occupancy is an official document issued by a municipal authority confirming that a building complies with applicable codes and is. more

Bylaw Variance

A bylaw variance is official permission granted by a municipal authority allowing a property owner to deviate from local zoning or building bylaw. more

Absorption Rate

Absorption rate is a metric that measures the rate at which available properties are sold or leased in a specific market over a given period.. more

Corporate Restructuring

Corporate restructuring refers to the reorganization of a company’s operations, assets, or liabilities, often under court supervision, to improve. more

Consumer Proposal

A consumer proposal is a formal, legally binding agreement in Canada between an individual and their creditors to repay a portion of their debt over. more

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