Canadian lenders use two debt-service ratios to assess whether you can afford a mortgage: the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio. GDS measures your housing costs alone, while TDS includes all your debts. Most lenders require GDS under 39 per cent and TDS under 44 per cent, though these thresholds can vary by lender and product. Understanding these ratios helps you gauge your borrowing power before you apply.

What Are Debt-Service Ratios?

Debt-service ratios measure the percentage of your gross (pre-tax) income that goes toward debt obligations. Lenders use these ratios to assess affordability and the risk that you might default if interest rates rise or your income drops. According to the Financial Consumer Agency of Canada, these ratios are a core part of mortgage underwriting across Canadian financial institutions (FCAC, 2026).

The two ratios serve different purposes. GDS focuses exclusively on housing costs, while TDS captures your overall debt load, including credit cards, car loans, student loans, and other recurring obligations. Together, they paint a complete picture of your monthly commitments relative to your income.

Gross Debt Service (GDS) Ratio

The GDS ratio divides your monthly housing costs by your gross monthly income. Housing costs include the principal and interest on your mortgage, property taxes, heating expenses, and (if applicable) 50 per cent of condominium fees. If your down payment is less than 20 per cent and you require mortgage default insurance through CMHC, the insurance premium is also included.

Formula:

GDS = (Mortgage payment + Property taxes + Heating + 50% of condo fees) / Gross monthly income

Most Canadian lenders cap GDS at 39 per cent. If your GDS exceeds this threshold, the lender may reduce your approved loan amount or decline the application altogether. The cap exists because housing costs are fixed and unavoidable: if they consume too much of your income, you have little cushion for emergencies or rate increases at renewal.

Total Debt Service (TDS) Ratio

The TDS ratio adds all your non-housing debts to the GDS calculation. This includes minimum payments on credit cards, car loans, student loans, lines of credit, and any other recurring obligations. Child support and alimony are also counted.

Formula:

TDS = (GDS obligations + All other monthly debt payments) / Gross monthly income

The standard TDS ceiling is 44 per cent, though some lenders accept up to 45 or 46 per cent for borrowers with excellent credit, a large down payment, or other compensating factors. A TDS above the threshold signals that you are carrying significant debt relative to your income, which raises the lender’s risk.

How Lenders Use These Ratios

Lenders calculate both ratios during the pre-approval and final approval stages. If either ratio exceeds the lender’s maximum, you will not qualify for the requested mortgage amount. The lender will either offer a smaller loan (lowering the GDS component) or ask you to pay down other debts (lowering the TDS component) before reapplying.

These ratios work alongside the OSFI mortgage stress test, which requires that you qualify at the higher of the Bank of Canada qualifying rate (currently 5.25 per cent as of July 2026) or your contract rate plus two percentage points (OSFI, 2026). The stress test applies to the interest portion of your mortgage payment used in the GDS and TDS calculations, so even if your actual rate is lower, the lender tests your ratios as if you were paying the higher qualifying rate.

Why These Ratios Matter

Debt-service ratios protect both you and the lender. For you, staying within the thresholds means your housing and debt costs are manageable relative to your income, leaving room for savings, discretionary spending, and unexpected expenses. For the lender, the ratios reduce the risk that you will default if rates rise at renewal, your income drops, or an emergency drains your savings.

Read also: Mortgage Stress Test in Canada: Everything You Need to Know

As outlined in foundational texts such as Principles of Finance, lenders assess creditworthiness by comparing cash flows to obligations, and debt-service ratios are a standardized way to measure that balance (OpenStax, 2022). A borrower with a TDS of 35 per cent has more financial flexibility than one at 44 per cent, even if both are approved.

Canadian Context and Variations

While 39 per cent GDS and 44 per cent TDS are common benchmarks, these limits are guidelines, not legal maximums. Some lenders relax the thresholds for borrowers with a down payment above 20 per cent, strong credit scores (typically 700 or higher), or stable employment in a high-income profession. Others, particularly credit unions and alternative lenders, may accept higher ratios but charge a higher interest rate to offset the added risk.

The stress test has made the ratios more binding. Before the stress test, a borrower might qualify with a GDS just below 39 per cent at their contract rate. Now, the same borrower must stay under 39 per cent when tested at the qualifying rate, which effectively reduces the maximum loan amount.

Provincial differences also matter. Property taxes vary widely: a home in Toronto carries higher annual taxes than an equivalent property in rural New Brunswick, which raises the GDS ratio for the Toronto buyer. Heating costs, included in GDS, are higher in colder provinces. These regional factors mean that two borrowers with identical incomes and debts may have different ratios depending on where they buy.

Example Calculations

Scenario 1: You earn C$6,000 per month (gross). Your proposed mortgage payment (principal, interest, taxes, and heating) totals C$2,200. You have a C$400 monthly car loan payment and a C$150 minimum credit card payment.

  • GDS = C$2,200 / C$6,000 = 36.7% (under the 39% cap)
  • TDS = (C$2,200 + C$400 + C$150) / C$6,000 = 45.8% (over the 44% cap)

You would not qualify at this debt level. To qualify, you would need to pay down the car loan or credit card to bring TDS below 44 per cent, or increase your income.

Scenario 2: Same income, but you pay off the credit card and reduce the car loan to C$250 per month.

  • GDS = 36.7% (unchanged)
  • TDS = (C$2,200 + C$250) / C$6,000 = 40.8% (under the 44% cap)

You now meet both thresholds and would likely be approved, assuming you pass the stress test.

Conclusion

The GDS and TDS ratios are the gatekeepers of mortgage approval in Canada. Lenders use them to ensure your housing costs and total debts remain sustainable relative to your income, and the OSFI stress test adds an extra layer of scrutiny. Before you apply, calculate your own ratios using your gross monthly income and expected housing and debt costs, tested at the qualifying rate. If either ratio is too high, pay down debts or adjust your price range.

This information is general educational content only and is not personalized financial, lending, or legal advice. Mortgage qualification rules, debt-ratio thresholds, and stress test rates vary by lender, product, province, and your individual circumstances. Confirm current requirements and your personal eligibility with a licensed mortgage broker or your financial institution before making any decisions.