Debt-to-Income Ratio

How to calculate it

Add up your required monthly debt payments: mortgage or loan payments, car loan, student loan, minimum credit card payments, and payments on lines of credit. Divide by your gross monthly income, before tax, and multiply by 100. If $1,500 of payments sits on $6,000 of gross income, your DTI is 25%.

Note what is excluded: rent, utilities, groceries and insurance are obligations, but they are not debt, so they stay out of the classic DTI. That is also the ratio's blind spot. A renter paying $2,500 a month can have a spotless DTI and no room to breathe, which is why DTI works best alongside a real budget, not instead of one.

DTI vs GDS and TDS: cousins, not twins

When you apply for a mortgage, Canadian lenders do not actually quote a "DTI". They use the debt service ratios: the GDS ratio, which measures housing costs against gross income, and the TDS ratio, which adds all other debt payments on top. Both are calculated with the qualifying rate from the stress test rather than your actual contract rate, which makes them stricter than they look.

Think of it this way: GDS and TDS are the formal exam lenders run for mortgages; DTI is the general-purpose health check you can run on yourself any month of the year, for any kind of debt decision. If your DTI is drifting up, your TDS will be waiting for you at the mortgage desk.

The other "debt-to-income" in the news

Headlines regularly report that Canadian households owe some number of dollars for every dollar of income. That statistic is a different measure: total household debt, mortgages included, divided by annual disposable income. It compares the whole stock of debt to a year of income, while the personal DTI compares monthly payments to monthly income. A household can look alarming on the headline measure, because a big mortgage is a big stock of debt, while being perfectly comfortable on a payment basis. When you see the headline number, do not confuse it with the ratio a lender, or this article, is talking about.

What lenders like, and how to improve it

As a rough guide, a DTI under about 30% reads as comfortable, the mid-30s draws attention, and past roughly 40% most lenders get nervous, which echoes where the formal TDS limits sit. Improving the ratio has two sides.

• Attack revolving debt first. Paying down credit cards and lines of credit shrinks required payments immediately, improves your credit score through lower utilization, and frees up cash flow, three wins from one move.
• Do not add payments before a mortgage application. A new car loan or a buy-now-pay-later plan in the months before you apply raises your TDS and can directly shrink the mortgage you qualify for.
• The income side counts too. A raise, documented side income, or adding a co-borrower lowers the ratio just as surely as paying down debt, and lenders will use income they can verify.