Debt Service Ratios (GDS and TDS)
Ratios d'endettement (ABD et ATD) in French
Quick definition
Debt service ratios measure how much of your gross income goes to debt. GDS covers housing costs only; TDS adds all other debt payments. Canadian lenders use them, with the stress-test rate, to decide how much mortgage you qualify for.
GDS: the gross debt service ratio
GDS answers one question: what share of your gross income would the house itself consume? The numerator includes your mortgage payment, property taxes, heating costs and half of your condo fees, if any. The denominator is your gross (pre-tax) monthly income. For an insured mortgage, the standard maximum is 39% (as of July 2026).
One detail catches many buyers off guard: the mortgage payment in the calculation is not your actual payment. It is computed at the stress test qualifying rate, the higher of your contract rate plus 2 percentage points and the 5.25% floor (as of July 2026). So even if your contract rate is 4.5%, your ratios are tested as if you were paying 6.5%.
TDS: the total debt service ratio
TDS starts with everything in GDS and adds all your other monthly debt obligations: car loans and leases, student loans, credit card minimum payments, support payments, and lines of credit. For a line of credit, lenders typically count 3% of the outstanding balance as the monthly payment, even if your actual minimum is interest-only. The standard maximum for an insured mortgage is 44% (as of July 2026).
These are the CMHC-insured standards; many lenders hold more conservative internal caps, especially for borrowers with a weaker credit score, and some price their best rates only for applicants comfortably below the limits. Credit unions, which are provincially regulated, have more flexibility and can sometimes approve files that exceed the federal standards.
Exceeding either ratio, GDS or TDS, gets an insured application declined. It only takes one. A buyer can have a modest housing budget but fail on TDS because of a large car payment.
What counts as income
Lenders use gross income they can verify. Salary and hourly base pay are straightforward. Bonuses, overtime and commissions usually count only with a track record, commonly a two-year average. Self-employed income is generally averaged from your last two notices of assessment. Rental income counts partially: many lenders add a portion of it (often around 50%) to income or use it to offset the property's costs, rather than counting every dollar.
How to improve your ratios
Because the ratios are simple fractions, you can attack either side: raise verifiable income, or shrink the payments being counted. Practical moves before you apply:
- Pay down or pay off loans with high monthly payments; eliminating a $450 car payment frees far more ratio room than its balance suggests.
- Reduce line of credit balances, since 3% of the balance is counted monthly whether you pay it or not.
- Close unused credit lines so they cannot be counted, and to reduce temptation.
- Choose a longer amortization period, which lowers the monthly payment used in the calculation.
- Make a bigger down payment, which shrinks the mortgage and its payment.
- Add a co-borrower whose income boosts the denominator more than their debts hurt the numerator.
In Canada
The 39% and 44% caps are the standards for high-ratio mortgages backed by mortgage default insurance (as of July 2026). Combined with the qualifying-rate rule, they are the mechanics behind every Canadian mortgage affordability calculation: the maximum home price a calculator shows you is simply the largest mortgage whose stress-tested payment keeps both ratios under their caps.
The half-of-condo-fees convention is a CMHC standard worth knowing if you are comparing a condo and a freehold house. A $600 monthly condo fee only adds $300 to your GDS numerator, but a freehold's higher heating and maintenance costs are not fully captured either, so the ratios are a qualification tool, not a true cost-of-living comparison.
Worked example
Sam and Alex have a combined gross income of $110,000, or $9,167 per month. They want a $420,000 mortgage at a 4.5% contract rate, so they are tested at 6.5% (as of July 2026). At the qualifying rate, the payment on a 25-year amortization is about $2,836 per month. Add property taxes of $350, heat of $150 and half of their $400 condo fees ($200): housing costs total $3,536. GDS = 3,536 / 9,167 = 38.6%, just under the 39% cap.
Now TDS. They have a $450 car payment and a $5,000 line of credit balance, counted at 3%, or $150. TDS = (3,536 + 600) / 9,167 = 45.1%, over the 44% cap, so the application fails despite passing GDS. They pay off the car loan before applying: TDS drops to (3,536 + 150) / 9,167 = 40.2%, and the file passes both tests.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026