Know your numbers.

Debt ratios 101

Take 5 minutes to read the following explanation and another 5 minutes doing some simple math. You'll save yourself many sleepless nights trying to unravel the mystery of whether or not you will be able to get a mortgage on that property you suspect is beyond your budget...

Debt ratios are a calculation of your debt level as a percentage of your income and expenses. Your debt ratios play an important role in assessing your borrowing capacity for mortgages and other loans. 

There are two types of debt ratios: gros debt service (GDS) and total debt service (TDS). 

Gros debt service (GDS)

This ratio is used to determine the percentage of your housing costs (annual living expenses) in comparison with your annual income.

Living expenses include:

  • Monthly costs
  • Property tax
  • School tax
  • Annual heating costs
  • 50% of annual condo fees

For an insured mortgage (where the downpayment is less than 20% of the purchase value of the property), financial institutions require that the gros debt service does not exceed between 32 and 39%.

The formula

Annual total of monthly mortgage payments

+    Property taxes
+    School taxs
+    Annual heating costs
+    50% of annual condo fees
=    Total living expenses
X     100
=    Total 
÷    Gross annual revenue
=    Gross debt service


Example case study:

Annual total of monthly mortgage costs 12,000
+    Property tax 6,860
+    School tax  1,000
+    Annual heating costs 1,500
+    50% of annual condo fees 0
=    Total living expenses 21,360
X 100  
Total 2,136,000
Gross annual revenue 68,000
Gross debt service 32%

In the above case study, the gros debt service falls at the low end of the 32 to 39% range, an acceptable ratio for mortgage approval. 

Total debt service (TDS)

This ratio is used to determine the percentage of your total living expenses and other annual financial commitments in comparison with your annual income. The amortized total debt ratio offers a more complete picture of your financial situation because it indicates whether you have the financial capacity to assume all your current expenses, plus the unexpected ones.

According to government norms, this ratio should not be more than 44% for an insured mortgage. Some lenders will accept a lower ratio.

The formula

Living expenses
+    Other annual financial expenses
=    Total annual expenses
X     100
=    Total 
÷    Gross annual income
=    Total debt service


Example case study:

Living expenses 21,360
+   Annual car payments 2,460
+    Annual personal line of credit payments  1,400
+    % of credit card balance 1,300
+    50% of annual condo fees 0
=    Total annual expenses 26,520
X 100  
Total 2,652,000
Gross annual income 68,000
Total debt service 39%

A 39% total debt service is acceptable to financial institutions as it falls below the 44% ceiling limit set by the government. 

It is very important to take these ratios into account when you evaluate the price you're willing to pay for a property. This is the standard formula lenders use to calculate your mortgage approval.