Previously, we told you about the new affordability screen available on the CMA and how it calculates how much you can borrow by using the industry-standard debt ratio (GDS/TDS).
To clarify, Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS) are the two formulas that lenders use to determine how much they are willing to let you borrow. Let’s explore further what each of these ratios means and exactly how they are calculated.
GDS is the % of the gross annual income that is required to cover payments associated with housing. This includes mortgage principal, interest, property taxes and sometimes also include secondary financing, heating and other condo fees. Most of the lenders abide by the general standard of 32% which means your GDS should lower than that to qualify for a mortgage.
GDS = Total monthly payments (x 100) Gross monthly income GDS = $1,436.54 (x 100) = 24.76% $5,800.00
TDS is the % of gross annual income required to cover the payments associated with housing and all other debts and obligations, such as car loans and credit cards. The industry standard for TDS is 40%.
TDS = Total monthly payments (x 100) Gross monthly income TDS = $1,750.26 (x 100) = 30.17% $5,800.00
What if your ratio is higher than the industry standard? Speak to one of our Local Experts more information.
Also in this update, we have translated The Canadian Mortgage App in French, Chinese and Spanish that can be directly accessed from CMA’s side menu.
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