Gross Debt Service (GDS) is a financial ratio used by lenders to determine whether a borrower can afford a mortgage. It measures the percentage of a person’s gross (before-tax) income that goes toward housing costs.
How It’s Calculated
GDS = (Mortgage payments + Property taxes + Heating costs + 50% of condo fees, if applicable) ÷ Gross monthly income × 100. In Canada, lenders generally require a GDS ratio of 32% or less to qualify for a mortgage.
Why It Matters
- For lenders: Helps assess whether a borrower can reasonably afford housing costs.
- For borrowers: Provides a benchmark for safe borrowing levels and prevents overextending financially.
Final Thoughts
The GDS ratio is a key affordability measure in mortgage lending. Keeping housing costs within the recommended range helps ensure long-term financial stability for homeowners.