GDS / TDS Ratios
How does it work…
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, and property taxes and sometimes also includes secondary financing, heating and other condo fees.
Most lenders abide by the general standard of 32%. Some stretch it to 39%, which means your GDS should be lower than that to qualify for a mortgage.
Example:
Say your gross annual income is $75,000. monthly it works out to be $6,250
Say your monthly property expenses,, including the mortgage, comes to $1,436.90.
GDS = Total monthly payments / Gross monthly income x 100;
GDS = $1,436.54 / $6,250 x 100 = 22.985%
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%.
Example:
We will also add our monthly debt obligations, like car and credit card payments, with TDS.
Say this sums up to be 1,750.25
TDS = Total monthly payments / Gross monthly income x 100
TDS = $1,750.26 / $6,250 x 100 = 28.004%
What if your ratio is higher than the industry standard? Speak to one of our Local Experts for more information.
Also, in this update, we have translated The Canadian Mortgage App in French, Chinese and Spanish, which can be directly accessed from CMA’s side menu.
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