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Qualifying for a mortgage

Mortgage lenders or brokers will use your financial information, including your income and debts, to determine how much they can lend you. They will use two financial formulas to help them:


Qualifying for a mortgage

Mortgage lenders or brokers will use your financial information, including your income and debts, to determine how much they can lend you. They will use two financial formulas to help them:

Gross debt service ratio

Gross debt service ratio (GDS) is the percentage of your gross income (before deductions such as income tax) required to cover home-related costs, such as:

  • mortgage payments
  • property taxes
  • heating, and
  • 50% of condo fees (if applicable).

As a general rule of thumb, the GDS ratio should not be more than 32% of your gross income. 

Total debt service ratio

Total debt service ratio (TDS) is the percentage of gross income required to cover home-related costs (mortgage payments, property taxes, heating, and 50% of condo fees, if applicable), plus all of your other debts, such as:

  • credit card payments
  • car payments
  • lines of credit
  • student loans
  • child or spousal support payments
  • any other debts.

Generally, the TDS ratio should not be more than 40% of your gross income.

Qualifying rates for certain types of mortgages

Federally regulated lenders, such as banks, will see whether you qualify for a mortgage based on the Bank of Canada's five-year benchmark rate or the interest rate in your mortgage contract, whichever is higher, if you have less than a 20% down payment and you:

  • apply for a variable interest rate mortgage, or
  • apply for a fixed interest rate mortgage with a term that is less than five years.

You must qualify at this rate even if you are planning on getting a shorter term with a lower interest rate.

If you are applying for a fixed term of five years or longer, the lender can use the actual interest rate in your contract to see if you qualify.

Calculating your GDS and TDS ratios

You can see your GDS and TDS ratios by using FCAC’s Mortgage Qualifier Tool.

If you find that your debt service ratios are higher than you’d like, some of your options include:

  • looking at homes in a lower price range
  • saving for a larger down payment
  • reducing your debts.
For more on managing your debt, see the Debt management section of FCAC’s website.

www.fcac-acfc.gc.ca/Eng/resources/publications/mortgages/Pages/BuyingYo-Acheterv-7.aspx

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