Your debt-service ratio measures how much of your gross income would go toward housing and debt payments. In Canada, lenders usually look at gross debt service (GDS) and total debt service (TDS); in the United States, the comparable measure is generally called debt-to-income ratio (DTI). A higher ratio can reduce the amount you qualify to borrow, but it is not an automatic approval or rejection decision.
What a debt-service ratio measures
A lender uses the ratio to test whether your income can support the proposed mortgage payment and your existing obligations. The denominator is generally gross income before tax, while the numerator contains the monthly costs the lender’s rules require it to count. Because lenders define income, obligations and qualifying payments differently, two applications with the same household budget can produce different ratios.
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Canada: GDS and TDS
Canadian mortgage guidance separates the calculation into two related measures:
- Gross debt service (GDS) compares eligible housing costs with gross household monthly income.
- Total debt service (TDS) adds eligible non-housing debts to those housing costs and compares the total with gross household monthly income.
The Financial Consumer Agency of Canada (FCAC) describes the calculation and the costs included in its consumer mortgage guide: Preparing to get a mortgage.
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United States: DTI
US lenders generally use debt-to-income ratio, or DTI. It divides monthly debt payments by gross monthly income. The label is familiar across the country, but the debts included, the qualifying payment and the maximum acceptable ratio depend on the loan program and lender. Canadian GDS/TDS percentages and US DTI percentages should not be compared until their inputs and underwriting rules match.
How to calculate your Canadian GDS and TDS
Start with the income and monthly payment amounts a lender is likely to verify, not an optimistic household budget. FCAC’s consumer guidance identifies the following formulas.
GDS formula
GDS = (monthly mortgage payment + property taxes + heating costs + counted condo fees) ÷ gross household monthly income × 100.
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TDS formula
TDS = (the GDS housing costs + other counted monthly debt obligations) ÷ gross household monthly income × 100.
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Other obligations can include credit-card payments or balances, car loans, lines of credit, student loans, child support and spousal support, along with other debts the lender must include.
Worked Canadian example
Assume a household has gross monthly income of $8,000 and the following monthly costs:
| Item | Monthly amount | Used in |
|---|---|---|
| Mortgage payment used by lender | $2,300 | GDS and TDS |
| Property taxes | $300 | GDS and TDS |
| Heating | $150 | GDS and TDS |
| Condo fee counted at 50% | $150 | GDS and TDS |
| Auto loan | $300 | TDS |
| Student loan | $150 | TDS |
| Credit-card obligation | $50 | TDS |
Eligible housing costs total $2,900, so GDS is $2,900 ÷ $8,000 × 100 = 36.25%. Adding the $500 of other debts produces total counted obligations of $3,400, so TDS is $3,400 ÷ $8,000 × 100 = 42.5%. Your lender may use a different mortgage payment if a qualifying-rate stress test applies, which would change both results.
What the Canadian benchmark percentages mean
FCAC’s consumer guidance says monthly housing costs should not be more than 39% of gross household income and total debt load should not be more than 44%. These are guideposts, not statutes that guarantee approval or impose an identical automatic cutoff at every lender. The same FCAC page says a borrower may still qualify slightly above either figure.
A ratio below a benchmark also does not guarantee a mortgage. Lenders assess the reliability of income, expenses, credit history and score, the amount borrowed, the amortization period and other application details. A ratio above a benchmark signals that the file may need stronger compensating factors, a different loan amount or a different lender’s policy.
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The qualifying-rate stress test
For federally regulated Canadian banks, FCAC describes a qualifying rate that is the higher of 5.25% or the negotiated mortgage rate plus 2 percentage points. The bank calculates an affordability payment at that qualifying rate, which can be higher than the payment in your contract. Because this rule can change, verify the current requirement with FCAC or the lender when you apply; the current consumer guidance is at canada.ca’s mortgage-preparation page.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsThe stress test means an application can look affordable using the advertised contract payment but fail the lender’s ratio calculation using the higher qualifying payment. It can also reduce the maximum principal you can borrow even when your actual payment would be lower.
What counts as income and debt
Use the lender’s definition rather than simply adding every deposit that appears in a bank account. Salaried income is usually documented with employment records; self-employed, commission, bonus, rental and other variable income may require additional history and may be averaged or discounted. Ask which documents and averaging period apply before relying on a figure.
On the debt side, disclose every obligation. Credit-card balances, personal lines of credit, vehicle financing, student loans and support payments can raise TDS even when their interest rates are low. A lender can also count debts that are not visible in the simplified calculation you used, and it may use a required payment amount instead of the amount you voluntarily pay.
For a property you already own, an existing mortgage payment, property tax and heating cost can remain in the calculation unless the lender has an acceptable payoff or sale arrangement. Condo fees are not necessarily counted in full; the FCAC example uses half, but the treatment should be confirmed for your application.
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How US DTI works and why a Canadian percentage is not portable
The Consumer Financial Protection Bureau’s consumer explanation defines DTI as monthly debt payments divided by gross monthly income. Its example uses a $1,500 mortgage payment, a $100 auto loan and $400 in other monthly debt, for $2,000 of debt against $6,000 of gross income. The resulting DTI is 33% ($2,000 ÷ $6,000). That is a worked example, not a recommended maximum. See What is a debt-to-income ratio?
US mortgage programs count different obligations and may use different rules for housing expense, simultaneous loans, alimony, child support and other current debts. Regulation Z’s ability-to-repay rule requires a creditor to consider monthly DTI or residual income and to verify income and obligations as specified in the regulation, but it does not set one DTI threshold for every mortgage. The regulation and official interpretations are published at 12 CFR § 1026.43.
“Different loan products and lenders will have different DTI limits.”
Do not treat 43% as a universal, current US limit. The CFPB’s explanation of the General Qualified Mortgage rule says the former 43% DTI cap was removed and replaced with price-based thresholds; other qualified-mortgage categories and program rules also exist. That rule explainer was last modified in 2021, so use the operative regulation and the lender’s current program criteria for an application: General QM loan definition.
Why the ratio affects the amount you can borrow
Every dollar committed to housing or existing debt leaves less gross income available for the proposed mortgage under the lender’s affordability model. If the calculated payment pushes GDS or TDS above the lender’s policy, the lender may lower the approved principal, require a larger down payment, request a co-borrower or decline the application. The ratio is a structured repayment test, not a complete household budget: it does not tell you whether you can comfortably pay for food, childcare, insurance, maintenance, emergencies or other costs that are outside the lender’s formula.
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Credit history, score, verified assets, employment stability, down payment, property type, loan size and amortization can all affect the decision. A strong credit file or substantial liquid assets may help explain a higher ratio, but no compensating factor guarantees an exception.
How to compare mortgage options without misleading yourself
When comparing a bank, broker or loan program, place the assumptions next to each quoted ratio. A percentage by itself is not a meaningful comparison.
| Comparison point | Question to ask |
|---|---|
| Jurisdiction and program | Is this Canadian GDS/TDS, US DTI or another calculation, and which loan program’s rules apply? |
| Income definition | Is income gross, averaged, capped or discounted, and what documents establish it? |
| Housing costs | Are taxes, heating, condo fees, insurance or other property costs included, and at what percentage? |
| Other obligations | Which card, loan, support and credit-line payments are counted, and what payment amount is used? |
| Qualifying payment | Is the calculation based on the contract rate, a stress-test rate or a program-specific payment? |
| Threshold and exceptions | What is the lender’s target, and under what documented circumstances can it make an exception? |
| Other underwriting | How do credit, assets, down payment, loan size, property type and amortization affect the decision? |
What to do if your ratio is too high
First identify whether the problem is the loan amount, the counted payment, the income documentation or existing debt. Then work through changes that improve the exact calculation the lender uses.
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- Recheck every input. Confirm gross income, tax and heating estimates, condo-fee treatment and the qualifying rate. Correct documentation errors rather than assuming the ratio is final.
- Reduce high monthly obligations. Paying down a credit card, vehicle loan or line of credit can lower the counted monthly debt. Do not drain the funds needed for the down payment, closing costs and emergency reserves.
- Reduce the proposed mortgage payment. A larger down payment or a lower purchase price reduces the principal and therefore the qualifying payment. Compare the interest, insurance and liquidity consequences before committing cash.
- Document stable eligible income. Provide the employment, tax and business records the lender requests. Variable income that cannot be verified may not receive full credit in the calculation.
- Consider a qualified co-borrower. Adding another applicant can change both income and debt totals. The co-borrower also becomes legally responsible for the mortgage, so obtain independent advice before using this approach.
- Ask about a different program or lender. Policies and exceptions differ, but a different threshold does not remove the obligation to disclose debts or prove repayment ability.
Do not take on new credit, move balances or omit an obligation merely to make a worksheet look better. Lenders verify information, and an undisclosed debt can jeopardize approval or create repayment risk after closing.
A practical self-check before applying
- Calculate gross monthly income using only amounts you can document under the lender’s rules.
- List the proposed mortgage payment at the applicable qualifying rate, not only the advertised contract payment.
- Add property taxes, heating and the lender’s treatment of condo fees and other housing costs.
- Calculate GDS and record every assumption beside the percentage.
- List each credit card, loan, line of credit, student loan and support obligation with its required monthly payment.
- Calculate TDS, then test a higher rate or a lower income if either is plausible during underwriting.
- Compare the result with the lender’s current policy and ask what other factors could change the decision.
- Budget separately for insurance, maintenance, utilities not counted in the ratio, closing costs, taxes and emergency savings.
Common mistakes that produce a misleading ratio
- Using take-home pay. GDS, TDS and DTI generally start with gross income, so substituting net pay makes the percentage appear higher and is not the lender’s formula.
- Using only the contract payment. A Canadian stress test can require a higher qualifying payment.
- Ignoring non-mortgage debt. A low-balance credit card or small student-loan payment still affects TDS or DTI when the applicable rule counts it.
- Assuming every lender counts costs identically. Condo fees, support payments, rental income and variable earnings can be treated differently.
- Calling a benchmark a guarantee. A ratio under a published guidepost does not replace credit, income, asset and property underwriting.
- Comparing percentages without assumptions. A Canadian TDS at one qualifying rate and a US DTI using another payment definition are not equivalent measurements.
The most useful ratio is therefore the one calculated with the exact lender, jurisdiction and loan-program assumptions attached. Use it to set a realistic price range and to identify debts or documentation to address before making an offer, not as a promise that an application will be approved.
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