Understanding Debt Service Ratios
In Canada, lenders use two primary debt service ratios when assessing mortgage qualification: Gross Debt Service (GDS) and Total Debt Service (TDS). These ratios measure how much of a borrower’s income is required to cover housing and debt obligations.
Gross Debt Service (GDS)
GDS measures the percentage of gross household income required to cover housing costs, including mortgage payments, property taxes, heating expenses, and in some cases condominium fees. Lenders compare this percentage to established maximum guidelines when determining qualification.
Total Debt Service (TDS)
TDS includes all housing costs plus additional recurring debt obligations such as credit cards, car loans, student loans, and lines of credit. Because TDS reflects total financial commitments, it often determines maximum borrowing capacity.
Why These Ratios Matter in Pre-Approval
Even small changes in income, interest rates, or outstanding debt can affect qualification results. Pre-approval calculations are directly influenced by these ratios, making them central to understanding realistic purchase ranges.