Tag Archives: total debt service

Question Box: What are GDS and TDS Ratios?

The following ratios can help in determining whether you’re financially ready to purchase a home.

GDS stands for Gross Debt Service.  This ratio describes the percentage of gross annual income required to cover your payments associated with housing.   Housing costs include:

  • mortgage principal
  • interest
  • property taxes
  • heating expenses

The above three are referenced as P.I.T.H.    If the property is a condominium, you also include 50% of the condo fees in your calculation.  If it is a leasehold tenure (ie. site pad) you include that full amount as well.

TDS stands for Total Debt Service.   This ratio describes the percentage of gross annual income required to your housing payments AND all other debts and obligations, such as credit cards, car loans, etc.

THE RULES

According to CHMC, the first affordability rule is that your monthly housing costs shouldn’t be more than 32% of your gross household monthly income.   Again, this figure is known as your Gross Debt Service (GDS) ratio. Remember, it must be 32% or less of your gross household monthly income. (Sutton has their definition of GDS, excluding heat, being at 27%)

The second affordability rule is that your Total Debt Service (TDS) ratio shouldn’t be more than 40% of your gross monthly income.

To figure out your percentage, use the following:

GDS/TDS  =  Total monthly payments  (x 100)
Gross monthly income

PUTTING THE RULES TO THE TEST

In the Calgary Herald yesterday, a president and CEO of a builder presented a couple of financing scenarios to support his home-buying comments, based on a 5% down, with a 4.2% rate for 4 year term.

Scenario 1.

A household qualifying income for a $200,000 home would be less than $33,000.  Monthly PI would be $887.

Scenario 2.

For a $300,000 home, a family would need an annual income of slightly less than $50,000.  Monthly PI would be $1,330.

How do those two scenarios above compare to the GDS/TDS affordability rules?  What amortization length was used?

Here are some great calculators:

CMHC Mortgage Calculator

CMHC TDS Calculator

LendingMax GDS/TDS Calculator (scroll to bottom)