Total Debt Service (TDS) is a financial ratio that measures the percentage of a borrower’s gross income needed to cover all monthly debt obligations, including housing costs and other loans. Lenders use it to assess whether a borrower can handle overall debt responsibly.
How It’s Calculated
TDS = (Mortgage payments + Property taxes + Heating costs + 50% of condo fees, if applicable + Other debt payments such as credit cards, car loans, or lines of credit) ÷ Gross monthly income × 100. In Canada, lenders typically require a TDS ratio of 40% or less.
Why It Matters
- For lenders: Helps ensure borrowers are not overextended across multiple debts.
- For borrowers: Encourages safe borrowing practices and prevents financial stress.
Final Thoughts
TDS provides a complete picture of affordability by considering all debts. Keeping this ratio within the recommended limits is key to maintaining long-term financial health.