Your mortgage approval comes down to two percentages. Understand them and you understand exactly how much a lender will lend you.
Gross debt service (GDS)
GDS = (mortgage payment + property tax + heating + 50% of condo fees) ÷ gross monthly income
CMHC limit: 39%. The mortgage payment is calculated at the stress-test rate, not your actual rate.
Total debt service (TDS)
TDS = (GDS costs + all other debt payments) ÷ gross monthly income
CMHC limit: 44%. Other debts include car loans and leases, minimum credit card payments (often 3% of the balance), lines of credit, student loans and support payments.
Worked example
Household income $150,000 ($12,500 a month). Mortgage of $600,000 at 4.49%, qualifying at 6.49%: payment $4,013. Property tax $417 a month, heating $100.
- GDS = (4,013 + 417 + 100) ÷ 12,500 = 36.2%: passes.
- Add a $600 car payment: TDS = 5,130 ÷ 12,500 = 41.0%: passes.
- Add another $500 of card and loan payments: TDS = 45.0%: fails.
Improving your ratios
- Debts usually bite first. Paying off a car loan can raise your approval more than a raise would.
- Close unused credit lines; some lenders count a payment even on a zero balance.
- Choose a home with lower property tax or condo fees.
Uninsured lenders may use different limits. Use the affordability calculator to find your maximum price.