December 11, 2018  
Nadlan realty | Mortgage TDS & GDS parameters used for pre approval

Mortgage TDS and GDS- How to estimate affordability

Banks and lenders look at two ratios when determining the mortgage amount you qualify for, which indicate how much you can afford. These ratios are called the Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio. They take into account your income, monthly housing costs, and overall debt load.

The first affordability rule, as set out by the Canada Mortgage and Housing Corporation (CMHC), is that your monthly housing costs – mortgage principal and interest, taxes, and heating expenses (P.I.T.H.) - should not exceed 32% of your gross household monthly income. For condominiums, P.I.T.H. also includes half of your monthly condominium fees. The sum of these housing costs as a percentage of your gross monthly income is your GDS ratio.

The CMHC’s second affordability rule is that your total monthly debt load, including housing costs, should not be more than 40% of your gross monthly income. In addition to housing costs, your total monthly debt load would include credit card interest, car payments (lease and insurance), and other loan expenses. The sum of your total monthly debt load as a percentage of your gross household income is your TDS ratio.

Gross Debt Service Ratio

                                                  Mortgage Principal & Interest + Taxes + Heating Expenses         

 Gross Debt Service Ratio =  ____________________________________________________________

                                                                                   Annual Income                             

The ratio should be < 32%

Total Debt Service Ratio

Total Debt Service Ratio

                  Housing Expenses + Credit Card Interest + Car Payments + Loan Expenses

           =   _______________________________________________________________________________

                                              Annual Income

The ratio should be < 40%

Note that while the industry guideline for GDS and TDS is 32% and 40% respectively, most borrowers with good credit and steady income will be allowed to exceed these limits. The maximum allowed is 39% and 44%. The calculator uses these maximums to estimate affordability.

 
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