GDS and TDS

These TDS and GDS formulas will allow you to calculate if your income is sufficient to meet the mortgage and tax obligations.

Lending Institutions use two basic ratios to determine if a borrower can afford to carry the mortgage payments.

The first is the GDS ratio or Gross Debt Service Ratio. This ratio compares the borrower’s gross income to the expenses of carrying mortgage payments including costs such as heat. As a guideline a ratio up to 30% is permitted or 32% if heating is included.

In a condominium, a further 50% of common expenses is included

GDS = ­­­­(Principal + Interest + Taxes)/ Gross Income

This ratio should be no greater than 30%

If heat is Included:

GDS = (Principal + Interest + Taxes + Energy)/ Gross Income

This ratio should be no greater than 32%

In a condominium:

GDS = (Principal + Interest + Taxes + 50% of Maintenance)/ Gross Income

Again, this ratio should not be greater than 30%

The second is the TDS ratio or Total Debt Service Ratio. This ratio considers all loan payments of the borrower, not just those related to the house (e.g. a car loan). In this case, a guideline up to 40% is permitted.

TDS = (Principal + Interest + Taxes + Loan Payments)/Income

Allowable TDS ratios will vary from lender to lender but most will fall in the 35% to 40% range.

NOTE: If you are calculating these ratios yourself, make sure you usea common time element for your costs. That is all principal, interest, taxes and income should be on a yearly basis (or a monthly basis) but you must be consistent. You cannot mix a monthly payment with your yearly gross income. Otherwise, you will end up with some strange ratios.

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