Gross Debt Service Ratio (GDS)

Understand the Gross Debt Service Ratio (GDS) in Canadian real estate, how it’s calculated, and why it’s essential for mortgage approval and affordability.

Gross Debt Service Ratio (GDS)



What is Gross Debt Service Ratio (GDS)?

The Gross Debt Service Ratio (GDS) is a financial metric used by lenders to determine how much of a borrower's income is required to cover housing-related costs.

Why Gross Debt Service Ratio (GDS) Matters in Real Estate

In Canadian real estate, the GDS ratio is one of the key factors used to assess mortgage affordability. It calculates the percentage of a borrower’s gross monthly income that goes toward housing expenses, including:

  • Mortgage principal and interest
  • Property taxes
  • Heating costs
  • 50% of condominium fees (if applicable)

The general guideline is that a borrower’s GDS should not exceed 32%. Staying within this threshold ensures that the buyer has sufficient income to manage their housing costs without financial strain.

A low GDS indicates a lower financial risk for lenders and increases the likelihood of mortgage approval. Conversely, a high GDS may signal overextension, prompting lenders to reduce the loan amount or request a larger down payment.

Buyers should calculate their GDS early in the homebuying process to understand what price range they can realistically afford and improve their financial position if necessary.

Example of Gross Debt Service Ratio (GDS)

A couple earns $8,000 per month. Their total monthly housing expenses are $2,400. Their GDS ratio is 30%, which falls within acceptable limits for most Canadian lenders.

Key Takeaways

  • Measures how much of your income goes toward housing expenses.
  • Lenders typically require a GDS of 32% or less.
  • Includes mortgage, taxes, heating, and 50% of condo fees.
  • Helps determine mortgage affordability and approval.
  • Crucial for budgeting and long-term financial health.

Related Terms

Additional Terms

Recourse Loan

A recourse loan is a type of loan where the lender can pursue the borrower’s personal assets, beyond the collateral, in the event of default.. more

Pari Passu

A pari passu clause is a contractual provision ensuring that multiple creditors share equally in repayment priority from the borrower’s assets.. more

Non-Recourse Loan

A non-recourse loan is a type of loan where the lender’s only remedy in case of default is to seize the collateral property; the borrower is not. more

Net Operating Income

Net operating income (NOI) is the total income generated by a property after operating expenses are deducted but before taxes and financing costs.. more

Mechanic's Lien

A mechanic’s lien is a legal claim by a contractor, subcontractor, or supplier for unpaid work or materials provided for a property.. more

Lis Pendens

Lis pendens is a legal notice filed in the land registry indicating that a property is subject to ongoing litigation that may affect its title.. more

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