Debt Ratios for Mortgage in Ontario – Explained
When it comes to buying a home in Ontario, getting approved for a mortgage isn’t just about how much money you make—it's also about how much debt you carry.
Lenders use specific calculations known as debt ratios to evaluate whether you can realistically afford to take on a mortgage. The two most important ones? Gross Debt Service (GDS) and Total Debt Service (TDS).
Understanding these ratios is critical, not only to secure mortgage approval, but also to ensure you’re not overextending your finances. In this guide, we’ll break down how debt ratios work in Ontario, what lenders look for, and how you can improve your chances of qualifying for a mortgage.
What Are Debt Ratios?
Debt ratios are formulas lenders use to determine how much of your income goes toward paying debt each month. These ratios are especially important in Canada’s mortgage approval process.
Gross Debt Service (GDS)
GDS measures how much of your gross monthly income goes toward housing costs. These include:
Mortgage payments (principal + interest)
Property taxes
Heating costs
50% of condo fees (if applicable)
Example:
Let’s say your gross monthly income is $6,000, and your monthly housing costs total $2,100.
Your GDS = $2,100 ÷ $6,000 = 35%
In Ontario, lenders typically want your GDS to be 39% or lower to approve you for a mortgage—especially for an insured mortgage backed by CMHC.
Total Debt Service (TDS)
TDS takes it one step further. It includes all housing costs (from GDS) plus other monthly debt payments, such as:
Credit card minimum payments
Car loans or leases
Personal loans
Student loans
Lines of credit
Example:
If you also have $600 in other monthly debt payments, your total debt obligations are $2,700.
Your TDS = $2,700 ÷ $6,000 = 45%
This would likely exceed the TDS threshold, which for insured mortgages is usually capped at 44%.
CMHC & Lender Guidelines
For insured mortgages (typically those with a down payment of less than 20%), the Canada Mortgage and Housing Corporation (CMHC) enforces strict limits:
Maximum GDS: 39%
Maximum TDS: 44%
These guidelines are meant to ensure borrowers don’t stretch themselves too thin financially. However, lenders can impose their own standards that may be more conservative—especially if the mortgage is uninsured.
Uninsured Mortgages
With a down payment of 20% or more, your mortgage is considered uninsured. In these cases, lenders may want to see a:
Maximum GDS: 32%
Maximum TDS: 40%
And while these are general rules, they’re not always set in stone. A higher credit score, stable employment, or a large down payment might convince a lender to be more flexible.
How These Ratios Affect Your Mortgage Approval
Just because your GDS or TDS ratios are under the limit doesn’t guarantee approval—it’s simply one part of the picture. Other factors include:
Your credit score
Your income stability
Your employment history
The size of your down payment
The type and location of the property
If your debt ratios are too high, even a high income might not help. The lender has to be confident you can cover all your obligations and still have room for emergencies and living expenses.
What Is a Good Debt-to-Income Ratio in Canada?
Many people search for "debt-to-income ratio" or DTI when researching mortgage approval. While DTI isn't exactly the same as GDS or TDS, it serves a similar purpose: gauging your financial health.
Here’s a general DTI breakdown in Canada:
DTI RatioAssessment36% or lessHealthy / Low risk37%–42%Manageable43%–49%Caution / Higher risk50%+Dangerous / Very high
DTI is calculated as:
(Total Monthly Debt Payments ÷ Gross Monthly Income) x 100
While GDS and TDS are more commonly used by lenders, DTI is a good number to know for your own budgeting and planning.
Tips to Improve Your Debt Ratios
If your debt ratios are too high, don’t panic. There are several strategies you can use to bring them down:
Pay down existing debt – Focus on high-interest credit cards first.
Delay large purchases – Wait until after you secure your mortgage before taking on new loans.
Boost your income – Side gigs, bonuses, or a second household income can improve your ratios.
Increase your down payment – The more you put down, the smaller your mortgage and the better your GDS will look.
Consolidate debt – Reducing your total monthly payment through consolidation can help your TDS.
Taking action even a few months before applying can make a meaningful difference in whether you’re approved—and at what rate.
Final Thoughts
Understanding debt ratios is one of the smartest things you can do when preparing for a mortgage in Ontario. Whether you're a first-time homebuyer or refinancing an existing loan, knowing how GDS and TDS work puts you in control of your financial future.
While lenders have their guidelines, you can take steps now to strengthen your position—by reducing debt, managing expenses, and planning ahead. A good mortgage broker or advisor can help you evaluate your debt ratios and recommend the best path forward.
Remember: A home should be a place of comfort, not financial stress. Know your numbers—and buy smart.
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