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.
When you’re buying a home, two terms often cause confusion: deposit and down payment . While they’re related, they serve very different purposes in the homebuying process. Here’s what you need to know. What Is a Deposit? A deposit is the money you provide when you make an offer on a property. Think of it as a show of good faith that proves you’re serious about purchasing. How it works : Typically, you provide a certified cheque or bank draft that your real estate brokerage holds in trust. If your offer is accepted, the deposit remains in trust until the deal moves forward. If negotiations fall through, the deposit is refunded. Connection to your down payment : Once the sale is finalized, your deposit becomes part of your total down payment. Why it matters : The amount is negotiable, but a larger deposit can make your offer more attractive in a competitive market. Keep in mind, however, that if you back out after conditions are removed, you risk losing your deposit. What Is a Down Payment? Your down payment is the amount you contribute toward the purchase price of your home when securing a mortgage. Minimum requirement : In Canada, the minimum down payment is 5% of the home’s purchase price. Anything less than 20% requires mortgage default insurance. Sources : Down payments can come from your savings, the sale of another property, RRSP withdrawals (through the Home Buyers’ Plan), a gift from family, or even borrowed funds. Example: How They Work Together Imagine you’re buying a $400,000 home with a 10% down payment ($40,000). When you make your offer, you provide a $10,000 deposit . Once conditions are met, that deposit is transferred to your lawyer’s trust account. At closing, you add the remaining $30,000 to complete your full down payment. The lender provides the rest—$360,000—through your mortgage. The Bottom Line Your deposit shows commitment and secures your offer, while your down payment is what makes the mortgage possible. Together, they work hand in hand to get you into your new home. 📞 If you’d like clarity on deposits, down payments, or any other part of the mortgage process, let’s connect. I’d be happy to walk you through it step by step.
When you apply for a mortgage, your employment history and status carry a lot of weight. Even if you feel secure in your job, lenders need proof that your income is reliable and will continue. To them, your employment status is one of the strongest indicators of whether you can make your mortgage payments long term. Here’s how lenders typically view different employment situations: Permanent Employment This is the gold standard. Once you’ve passed any probationary period and hold permanent status, lenders see you as a lower risk. It shows that your employer is committed to you, and your income is steady. Probationary Periods If you’re still on probation—usually 3 to 6 months, though sometimes longer—lenders may hesitate. That’s because your employer can end your contract without cause during this period. Once probation is over, you’re considered more secure. That said, context matters. If you’ve worked with the same company for years as a contractor and just transitioned into full-time employment, lenders may accept a letter from your employer confirming that probation is waived. Documentation is key here. Parental Leave Being on or about to take parental leave doesn’t mean you can’t qualify for a mortgage. As long as you have a letter from your employer guaranteeing your position and return-to-work date, lenders can use your regular salary—not your leave income—when assessing your application. Term Contracts This is one of the trickiest categories. Even highly skilled professionals with strong incomes can face challenges here. A term contract has a start and end date, which makes lenders question the stability of your future income. To use term-contract income, lenders generally want to see at least two years of history, or proof that your contract has already been renewed. The more evidence you can show of consistent employment, the stronger your case will be. The Bottom Line If you’re planning to apply for a mortgage, it’s important to understand how your employment status could affect your approval. Whether you’re starting a new job, coming back from leave, or working under contract, lenders want documentation that proves your income is reliable. 📞 If you’ve recently changed jobs or are planning a career shift, let’s connect. I can help you prepare your file so you qualify with confidence and avoid surprises in the approval process.
Your credit score is one of the most important numbers in your financial life — especially when it comes to getting a mortgage. But for most Canadians, how that number actually gets calculated remains a bit of a mystery.