What are the key debt service ratios and how are they calculated?
Debt service ratios are vital metrics lenders use to assess your client's capacity to manage mortgage payments and other debt.
Key Points
Your Gross Debt Service (GDS) ratio is your housing costs (mortgage payment, taxes, heat, condo fees) divided by your gross income.
Your Total Debt Service (TDS) ratio is your GDS plus all other debt payments (loans, credit cards) divided by your gross income.
Lenders will check your GDS and TDS to make sure you can still afford your mortgage if interest rates go up.
If you have a mortgage with default insurance, the insurer sets the maximum GDS and TDS they will allow.
To qualify for a mortgage without default insurance, you'll need to prove you can afford the interest rate on your mortgage plus a buffer, or a set minimum rate.
Primary sources
Primary sources cited by the Ratellow Research Team. Editorial standards · Correction policy
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) .