How to Calculate GDS and TDS Ratios for Canadian Mortgages
Complete guide to calculating Gross Debt Service (GDS) and Total Debt Service (TDS) ratios used by Canadian lenders to qualify borrowers. Includes formulas, examples, and lender limits.
What Are GDS and TDS?
GDS (Gross Debt Service) and TDS (Total Debt Service) ratios are the two primary income qualification metrics used by Canadian lenders. They measure what percentage of a borrower's gross monthly income goes toward housing costs (GDS) and all debt obligations combined (TDS).
Canadian lenders calculate these ratios at the stress test qualifying rate — not the contract rate — per OSFI Guideline B-20. This means even if your mortgage rate is 5.5%, lenders test your ability to afford payments at 7.5%.
GDS Formula and Calculation
GDS = (Monthly Mortgage Payment + Property Tax + Heating + 50% of Condo Fees) ÷ Gross Monthly Income × 100
All mortgage payments are calculated at the qualifying rate: max(contract rate + 2%, 5.25%).
Example: $700,000 purchase, $140,000 down, $560,000 mortgage at 5.5% contract rate: • Qualifying rate: 7.5% • Monthly payment at 7.5% (25yr): $3,891 • Property tax: $400/month • Heating: $150/month • No condo fees • Total housing costs: $4,441 • Gross income needed for 39% GDS: $4,441 ÷ 39% = $11,387/month = $136,640/year
Qualifying Rate = max(5.5% + 2%, 5.25%) = 7.5% GDS = ($3,891 + $400 + $150) ÷ $10,000 = 44.4%
TDS Formula and Calculation
TDS = (All Housing Costs + Credit Card Obligations + Car Loans + Student Loans + Other Debts) ÷ Gross Monthly Income × 100
Credit card obligations: 3% of credit limit (not the outstanding balance or minimum payment). This is the Canadian standard.
Example adding debts to above scenario: • Housing costs: $4,441 • Car loan: $550/month • Credit card (3% of $8,000 limit): $240/month • Total debts: $5,231 • With $10,000 income: TDS = 52.3% (fails A-lender limit of 44%)
GDS and TDS Limits by Lender Type
Different lenders have different tolerances for GDS and TDS ratios:
| Lender Type | GDS Limit | TDS Limit | Notes |
|---|---|---|---|
| A-Lender (CMHC standard) | 39% | 44% | Stress test rate applied |
| A-Lender (some products) | 35% | 42% | Stricter for high LTV |
| B-Lender | 40-45% | 45-50% | Varies by lender/product |
| Private Lender | No limit | No limit | Equity-based only |
| Credit Union | 35-42% | 40-45% | Provincial rules vary |
How Rental Income Affects GDS/TDS
When the subject property generates rental income (e.g., a rental suite), lenders apply a rental offset to reduce housing costs in GDS/TDS:
• Rental offset method: Gross rent × offset % reduces housing costs • Add-back method: Gross rent added to borrower income • BIPS applies each lender's specific method automatically
Example: $2,500/month rental suite, 50% offset = $1,250 reduces housing costs. On a $4,441 housing cost, net = $3,191 in GDS calculation.
Using BIPS to Calculate GDS/TDS
BIPS automatically calculates GDS and TDS for every deal using proper Canadian semi-annual compounding. Enter your deal details and BIPS shows: • GDS and TDS at the qualifying rate • Which lenders pass based on their specific limits • Impact of rental income on ratios • How to restructure debt to improve ratios
Frequently Asked Questions
What is the GDS limit for Canadian mortgages?
The standard GDS limit is 39% for A-lenders (CMHC standard). B-lenders may accept up to 45-50%. GDS is calculated at the stress test qualifying rate, not the contract rate.
What counts toward TDS in Canada?
TDS includes: mortgage payment + property tax + heating + 50% condo fees (housing costs) PLUS credit card obligations (3% of limit), car loans, student loans, personal loans, child/spousal support, and other monthly debt payments.
How are credit cards counted in TDS calculations?
Canadian lenders use 3% of the credit card limit as the monthly obligation in TDS — not the minimum payment or the outstanding balance. A $10,000 credit card limit counts as $300/month in TDS regardless of the balance.
What is the qualifying rate for GDS/TDS calculations?
The qualifying rate under OSFI B-20 is max(contract rate + 2%, 5.25%). For a 5.5% contract rate, GDS/TDS are calculated at 7.5%. This ensures borrowers can afford payments if rates rise.
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