Your Total Debt Service (TDS) ratio shows what percentage of your gross income goes to all your monthly debt payments (housing plus other loans/credit cards). This acts as a key affordability measure for lenders, who typically want you to spend less than 44% and ideally between 36-40% on your monthly mortgage payments.
What is the Total Debt Service (TDS) ratio?
Your Total Debt Service (TDS) ratio is the percentage of your gross monthly income that goes toward all your debt payments including mortgage, property taxes, and other loans.
For example, if your gross monthly income is $6,000 and your total debt payments (mortgage, taxes, car loan, credit cards) are $2,100 per month, then your TDS ratio is 35% ($2,100 ÷ $6,000). This falls within the ideal range most lenders look for.
It is important to note that whilst the bank will (in some cases) loan you money at 44% TDS, most investors advise you have a TDS closer to 30–35% to ensure you have a comfortable buffer for unexpected expenses and to free up cash flow for other expenses. In this way, your TDS It acts as both a measure of affordability that you can use and as a lenders benchmark to assess your risk.
How to calculate the TDS ratio?
To calculate your TDS ratio, add up your monthly debts and divide by your gross monthly income. For example, consider an individual in Montreal with a gross monthly income of $8,500 and monthly debt obligations of $3,050, broken down as follows:
- Mortgage: $2,000
- Car loan: $500
- Student loan: $300
- Credit card minimum payments: $250
Using the following formula for the TDS ratio:
TDS ratio = (Total Monthly Debt Payments / Gross Monthly Income) × 100
For this example:
- Total Monthly Debt Payments = $2,000 + $500 + $300 + $250 = $3,050
- Gross Monthly Income = $8,500
So:
TDS ratio = ($3,050 ÷ $8,500) × 100 = 35.9%
Lenders would generally consider this person eligible for a mortgage while they maintain a healthy buffer for other living expenses.
How is the TDS ratio different from the GDS ratio?
The Total Debt Service (TDS) ratio is similar to another common lender metric, the Gross Debt Service (GDS) ratio, but there’s a key difference. The GDS only considers housing-related expenses, such as mortgage payments, property taxes, and heating or condo fees, while TDS includes all other debts like car loans, credit cards, and student loans.
Because it focuses solely on housing costs, lenders also call GDS the housing expense ratio. While TDS provides a complete picture of your overall debt load. Lenders primarily use the GDS in the mortgage process to ensure you can manage your housing costs relative to your income. (In some lender materials, you may also see GDS referred to as Housing 1 and TDS as Housing 2 ratio).
In practice, lender analyze TDS, GDS, and credit scores Lenders analyze TDS, GDS, and credit scores as key components in the mortgage loan underwriting process.