Debt service
GDS and TDS: the arithmetic that sets your maximum.
Your pre-approval amount is not a judgment call. It is the output of two ratios applied to a qualifying rate. Once you can run them yourself, you can predict a lender's answer before you ask.
Executive summary
The two formulas
Both are computed monthly and expressed against gross — pre-tax — income. Using net income will always overstate what you qualify for.
What counts in each line
| Item | Counts in | How it is counted |
|---|---|---|
| Mortgage principal and interest | GDS and TDS | Calculated at the qualifying rate, not the contract rate |
| Property tax | GDS and TDS | Annual municipal amount ÷ 12 |
| Heating | GDS and TDS | A standard monthly estimate, often scaled to property size |
| Condo fees | GDS and TDS | Commonly 50% of the monthly fee |
| Site or lease fees | GDS and TDS | In full where applicable |
| Car loan or lease | TDS only | Contractual monthly payment, for its full remaining term |
| Credit cards | TDS only | A lender convention such as a percentage of the balance, even at 0% promotional rates |
| Unsecured line of credit | TDS only | A percentage of balance, or an interest-plus-principal convention |
| Secured line of credit / HELOC | TDS only | Often amortized over a set term rather than interest-only |
| Student loans | TDS only | Required monthly payment; deferred loans may still be assigned one |
| Support payments | TDS only | In full where court-ordered |
| Co-signed debt | TDS only | Usually in full, unless a payment history proves someone else services it |
Worked calculation, line by line
What each $100 of monthly debt costs you
Because TDS is a hard ceiling, consumer debt trades one-for-one against housing capacity. The table converts monthly obligations into lost mortgage principal at the qualifying rate used above.
| Monthly obligation | Approximate mortgage capacity removed | Typical source |
|---|---|---|
| $100 | ≈ $15,000 | Small card balance carried month to month |
| $250 | ≈ $37,000 | Student loan payment |
| $400 | ≈ $60,000 | Line of credit at a moderate balance |
| $550 | ≈ $82,000 | Car loan |
| $800 | ≈ $120,000 | Car lease plus consumer debt |
This is why clearing or consolidating one obligation before applying often does more for a pre-approval than an extra $10,000 of down payment.
Where the limits come from — and where they bend
The 39% and 44% figures are conventions attached to default-insured mortgages, not a statute applied to every Canadian mortgage. On uninsured lending, ratio policy is set by the lender within OSFI's expectation that it maintains prudent underwriting standards and monitors debt-service coverage.
- Strong credit and equity can support somewhat higher ratios at some lenders.
- Weaker credit often pulls the applied limits down below the headline numbers, regardless of insurability.
- Rental properties are handled by a separate offset or add-back method that changes the ratio inputs entirely.
- Amortization length changes the payment, and therefore the principal a given ratio supports — this is the lever lenders reach for before ratio exceptions.
Failure modes and recovery
| What goes wrong | Why | Fix |
|---|---|---|
| Budget built on net income | Ratios use gross income | Re-run everything on pre-tax income |
| Payment estimated at the contract rate | Qualification uses the higher qualifying rate | Test capacity at contract rate plus two points, floored at 5.25% |
| Condo fees or property tax omitted | Both sit inside GDS | Use the actual listing's fees and tax before making an offer |
| Zero-balance card with a large limit | Some lenders count a payment on available credit | Reduce unused limits ahead of application if the lender does so |
| New debt after pre-approval | Ratios are re-tested before funding | Take on no new credit until the mortgage funds |
| Approved amount treated as a budget | The maximum ignores lifestyle and rate-renewal risk | Set your own ceiling below the qualifying maximum |
Written and reviewed by the Canadian Mortgage Compass Editorial Desk. This page is general information for Canadian readers and is not mortgage, legal, tax, or financial advice, and not an offer of credit. Rules, rates, and lender policies change; confirm your own situation with a licensed mortgage professional in your province. Editorial policy · Corrections