How much homecan you afford?

How GDS and TDS Ratios Determine What You Can Afford

When you apply for a mortgage in Canada, your lender uses two key ratios to determine how much you can borrow. The Gross Debt Service (GDS) ratio measures the percentage of your gross monthly income that goes toward housing costs, including your mortgage payment, property taxes, heating, and half of any strata or condo fees. Lenders typically cap GDS at 39% for insured mortgages and 35% for uninsured mortgages.

The Total Debt Service (TDS) ratio adds all of your other monthly debt payments on top of your housing costs. This includes car payments, student loans, credit card minimums, personal loans, and any other recurring obligations. The TDS cap is typically 44% for insured mortgages and 42% for uninsured. Whichever ratio is more restrictive becomes your binding constraint and determines your maximum qualifying amount.

Why the Stress Test Matters

Since 2018, all Canadian mortgage applicants must qualify at a rate higher than their actual contract rate. The qualifying rate is the higher of your contract rate plus 2%, or the Bank of Canada's benchmark rate of 5.25%. This stress test ensures you can still afford your payments if interest rates rise during your mortgage term.

The practical impact is significant. If your lender offers you a rate of 4.89%, you must qualify at 6.89% (since 4.89% + 2% exceeds 5.25%). This means your maximum qualifying amount is based on a higher rate than what you will actually pay, which reduces your buying power compared to what your monthly budget might suggest. Our calculator shows both the stress test rate used for qualification and the contract rate used for your actual payments.

Tips for Improving Your Affordability

If the calculator shows a lower number than you expected, there are several strategies to increase your qualifying amount. The most impactful is reducing your monthly debt payments, since every dollar of debt reduction directly increases your allowable mortgage payment under the TDS ratio. Paying off a $400/month car payment could increase your maximum home price by $70,000 or more.

Increasing your down payment is another effective strategy. A larger down payment not only reduces the mortgage amount you need but, once you reach 20%, eliminates the need for CMHC insurance entirely. This removes the insurance premium from your mortgage principal and can improve your qualifying ratios. If you are buying with a partner or family member, adding a co-buyer's income to the application will directly increase your GDS and TDS capacity.

What About First-Time Buyers?

First-time home buyers in Canada have access to a few additional benefits. As of December 2024, first-time buyers and purchasers of newly built homes can access 30-year amortization on insured mortgages, which lowers monthly payments and increases qualifying power. In BC, first-time buyers may also qualify for a Property Transfer Tax exemption on homes up to $500,000 (with partial exemption up to $525,000), saving thousands at closing.

What to Do After You Know Your Number

Knowing your maximum affordable price is the first step toward homeownership, but getting pre-approved by a lender confirms your actual buying power and shows sellers you are a serious buyer. A pre-approval locks in your rate for 90 to 120 days and gives you confidence when making offers.

Whether you are a first-time buyer looking at condos in the Lower Mission, searching for a family home in Glenmore, or exploring investment properties in Lake Country, knowing your budget upfront helps you focus your search and move quickly when the right property comes up. Contact our team to start the pre-approval process and begin your home search in the Okanagan.