How are debt service ratios calculated, and why are they important?
Key Points
Lenders use debt ratios to make sure you can comfortably afford your mortgage payments.
To check affordability, lenders use either your mortgage interest rate plus 2%, or 5.25%, whichever is higher.
Your property taxes and condo fees are included when the lender calculates how much you can afford.
Heating costs are factored into your affordability assessment, and these costs can vary depending on where you live.
Technical Research Verification
Our systems synchronized 4 data points and regulatory frameworks to verify this technical brief.
Related Questions
How does mortgage insurance enable lower down payments?
Mortgage insurance lowers the risk for lenders, allowing them to offer mortgages to borrowers with down payments between 5% and 20%.
How will lenders evaluate my debt service ratios, and what key factors are considered?
Lenders assess your ability to repay the mortgage by calculating your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.
What property considerations impact my mortgage application?
Lenders carefully assess the property's value and characteristics, directly influencing the loan amount you can secure.
How does the 'straight switch' exemption benefit you at renewal?
The 'straight switch' exemption lets uninsured mortgage borrowers move their mortgage to a new federally regulated lender (FRFI) at renewal without needing to pass the Minimum Qualifying Rate (MQR) .