TDS? GDS? What Is Income Debt Servicing?
Erik Sepper • October 21, 2020
“Debt servicing” is the measure of your ability to meet all of your financial obligations. There are two ratios that are examined by financial institutions to determine whether you can debt service a mortgage. The first one is called the “gross debt service” ratio (GDS) and the second is called the “total debt service” ratio (TDS).
When a lender is looking at your GDS, they add together all of your expenses in relation to the property you are purchasing - including your proposed annual mortgage payments, heating, property taxes, and a percentage of your condo fees (if applicable). When you combine all of these monthly payments and divide it by your total monthly income, this forms your GDS. Generally speaking, your GDS should not exceed 35%, but those who have exceptional credit, the allowed GDS ratio can increase to as high as 39%.
Your lender will also examine your total debt service ratio. This time, they will take your property expenses and add it to all of your other financial obligations (such as your credit cards, loan payments, outstanding lines of credit, support payments, etc.). After all the obligations are added up, they are again divided by your monthly income. Generally, this ratio should not exceed 40%. For those who have exceptional credit and/or income and assets, the allowable TDS ratios can increase as high as 45%.
Let's use an example to show this in practice. Bob and Sue are currently looking at purchasing a particular property that they want to make their new home. After running some numbers, their proposed housing expenses will include a $1500 monthly mortgage payment, $200 in property taxes ($2400/year), and no condo fees. Their total household income is $90,000 annually, which comes to $7500/month. $1700 divided by $7500 equals 0.227, or 22.7%. In this case, they come well under the required 35% GDS.
Now we will figure out their TDS. Let’s say Bob and Sue have a monthly car payment of $300. Bob also has child and spousal support payments, totalling $500 each month. Their credit cards and lines of credit amounts to a financial obligation $700 each month. These payments add up to $1500 each month, and after we add in the $1700 of housing expenses, we arrive at a total of $3200/month for all of their financial obligations. $3200 divided by $7500 equals 0.427, or 42.7%.
All of this information from Bob and Sue is very helpful for the lender, and if you understand it, it can be helpful for you too. Based on their GDS alone, Bob and Sue can easily afford the house they are considering. But factor in their other expenses and the picture is not as clear - the lender will likely look at their credit score next to determine if they can afford the property, or if they should set their sights a little lower due to being a credit risk.
Put another way, if Bob and Sue were able to drastically decrease their balances on their credit cards and line of credit, they would likely qualify for a more expensive home if they so desired.
If you're in a situation where you are questioning what you can afford, or want to discuss your personal GDS and TDS ratios in an effort to more clearly understand the financing process, contact me anytime, I would love to work with you.
Why More Mortgage Options Matter—Especially for Assignment Purchases One of the biggest advantages of working with an independent mortgage professional is access to choice. Instead of being limited to one lender and one set of products, mortgage brokers work with multiple lenders—each with different guidelines, risk tolerances, and mortgage solutions. That flexibility becomes especially valuable when your situation doesn’t fit neatly into a “standard” box. A great example of this is purchasing new construction through an assignment contract . Why Assignment Purchases Can Be Challenging Assignment purchases are often viewed as higher risk by traditional lenders. Rather than declining these deals outright, many lenders quietly make them difficult by adding layers of conditions, restrictions, or uncertainty. This can lead to delays, frustration, or financing falling apart late in the process. The Good News There are lenders—available exclusively through the broker channel —that have clear, favourable policies for assignment purchases. With the right lender and proper planning, these transactions are absolutely doable. Typical Financing Requirements for Assignment Purchases While every situation is unique, many lenders that allow assignment financing look for the following: Standard purchase qualification, including income verification, credit, and down payment Assignments accepted at either the original purchase price or current market value Minimum 620 credit score , with no prior bankruptcies or consumer proposals The full down payment must come from the purchaser —seller incentives cannot be used Required Documentation To secure financing, lenders typically require: The original purchase agreement signed by all parties The MLS listing (if applicable) The assignment agreement signed by the builder, original purchaser, and new buyer Any side agreements outlining changes to the purchase price A full appraisal to confirm value This list isn’t exhaustive, but it highlights that while assignment purchases require more coordination, they are very achievable with the right lender and guidance. Final Thoughts Assignment contracts can open doors to great opportunities—but only if your financing supports the transaction. This is where access to multiple lenders and specialized policies makes a real difference. If you’re considering purchasing new construction through an assignment, or if you’d like to explore more traditional purchase options, feel free to connect anytime. I’d be happy to walk you through the mortgage products available and help you choose an option that doesn’t limit your financing possibilities.
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. While Canada's economic recovery is broadening, a new layer of uncertainty has entered the picture. Here is what happened and what it means for your mortgage.
How Mortgage Payment Frequency Affects What You Pay Over Time You’ve probably heard the saying that there are two certainties in life: death and taxes. When it comes to your mortgage, there’s really just one certainty—you’ll repay what you borrow, plus interest. What is flexible, though, is how often you make your mortgage payments. And that choice can have a meaningful impact on how quickly you pay down your mortgage and how much interest you pay over time. The Six Mortgage Payment Frequencies Most lenders offer the following payment options: Monthly – 12 payments per year Semi-monthly – 24 payments per year Bi-weekly – 26 payments per year Weekly – 52 payments per year Accelerated bi-weekly – 26 payments per year Accelerated weekly – 52 payments per year Standard Payment Frequencies The first four options are designed to align with how you get paid. For example: Paid monthly? Monthly mortgage payments may make sense. Paid every two weeks? Bi-weekly payments can align nicely with your cash flow. With these standard options, regardless of how often you pay, the total amount paid over the year is the same —it’s simply divided into more frequent payments. What Makes “Accelerated” Payments Different Accelerated payments work differently—and this is where the real savings happen. With accelerated bi-weekly or accelerated weekly payments, you’re paying a slightly higher amount each time. That extra money goes directly toward reducing your mortgage principal, which lowers the interest you’ll pay over the life of the mortgage. A Simple Example Let’s assume a $1,000 monthly mortgage payment: Monthly: $1,000 once per month = $12,000 per year Semi-monthly: $500 twice per month = $12,000 per year Bi-weekly: $1,000 × 12 ÷ 26 = $461.54 every two weeks = $12,000 per year Accelerated bi-weekly: $1,000 ÷ 2 = $500 every two weeks = $13,000 per year With accelerated bi-weekly payments, you effectively make two extra payments per year without having to think about it. Those extra payments reduce your principal faster, which lowers interest costs over time. Accelerated weekly payments work the same way—you just make smaller payments more frequently. Why This Matters Long Term While it’s difficult to calculate exact savings due to variables like interest rates, terms, and amortization changes, maintaining an accelerated payment schedule over the life of your mortgage can reduce your amortization by up to three years and save a significant amount of interest. The Bottom Line Accelerated payments are a simple, automatic way to lower your overall cost of borrowing—without needing to make lump-sum payments or drastically change your budget. If you’d like to see how different payment frequencies would impact your mortgage specifically, feel free to reach out anytime. I’d be happy to walk through the numbers with you and help you choose the option that fits your goals.