What is GDS?
GDS stands for gross debt service. It measures the cost of housing against gross income, before taxes and other deductions. The idea is simple: no matter how much a borrower earns, the roof over their head should only take up so much of it.
The housing costs that go into GDS are the mortgage payment, property taxes, heating costs, and half of any condo fees where they apply. The mortgage payment used in the calculation is not necessarily the payment the borrower will make each month. For most prime lenders it is the payment at the qualifying rate, which is where the stress test comes in.
The formula is straightforward. Add up the monthly housing costs and divide by gross monthly income. If a household earns $10,000 per month before tax and its housing costs are $3,500 per month, the GDS ratio is 35 percent.
What is TDS?
TDS stands for total debt service. It takes the same housing costs from GDS and adds every other debt obligation the borrower has. Car loans, credit cards, student loans, lines of credit, child support, and any other regular payment all go into the numerator. The denominator is still gross monthly income.
TDS is the broader test. A borrower might be able to afford a house on paper, but if they are already carrying heavy debt, the lender wants to see that the total load is still manageable. A file with a strong GDS can still fail on TDS, which is why both numbers matter.
Lenders treat credit cards differently depending on the balance and the program. Some use a percentage of the outstanding balance as a monthly payment, while others use the actual minimum payment shown on the credit report. The details change the result, so the exact TDS on a file is always specific to the lender and the file.
What ratios do lenders actually use?
You will often hear reference points like 39 percent for GDS and 44 percent for TDS. Those numbers are useful as starting points, but they are not universal rules. Some lenders cap GDS at 35 percent. Others will go to 39 or slightly higher. TDS limits commonly sit between 42 and 44 percent, but they vary by lender, by mortgage insurance program, and by the strength of the rest of the file.
A borrower with excellent credit, stable employment, and a larger down payment may be allowed a little more room. A borrower with weaker credit or a smaller down payment may face tighter limits. The same lender may also apply different thresholds for insured purchases, conventional purchases, and refinances. Treat any published ratio as a reference point, not a guarantee.
What is the OSFI B20 stress test?
The OSFI B20 guideline is the federal rule that requires most federally regulated lenders to qualify borrowers at a higher rate than the one they will actually pay. The goal is to make sure that if interest rates rise, the borrower still has enough room in their budget to keep making payments.
The qualifying rate is the greater of two numbers: the contract rate plus two percent, or the minimum qualifying rate set by OSFI. If the contract rate is 4.5 percent and the minimum qualifying rate is lower, the borrower is tested at 6.5 percent. If the contract rate is higher, the plus two percent figure could be the one that applies. The actual monthly payment the borrower makes is based on the contract rate. The ratio math is based on the qualifying rate.
This matters because a small change in the qualifying rate can push a file from pass to fail. The stress test does not change the price of the house or the size of the loan. It changes the payment used in the GDS and TDS calculations, which changes the ratio, which changes the answer.
A worked example
Imagine a household with $120,000 in gross annual income, which is $10,000 per month. They are buying a condo with a $500,000 loan, a 25 year amortization, $600 in monthly condo fees, $500 in monthly property taxes, and $150 in monthly heating costs. They also have $400 in other monthly debt payments from a car loan and a credit card.
At a contract rate of 4.5 percent, the monthly mortgage payment on $500,000 over 25 years is about $2,779. The housing costs are $2,779 plus $500 in taxes, plus $150 in heat, plus half of the condo fees, which is $300. That totals $3,729 per month. GDS is $3,729 divided by $10,000, or 37.3 percent. Adding the $400 in other debts gives a total debt load of $4,129 per month. TDS is 41.3 percent. Against common reference limits of 39 percent GDS and 44 percent TDS, this file passes both.
Now run the same file through the stress test. The contract rate of 4.5 percent plus two percent is 6.5 percent. At 6.5 percent, the monthly mortgage payment on the same $500,000 loan is about $3,376. Housing costs rise to $4,326 per month. GDS becomes 43.3 percent. Total debt service becomes $4,726 per month, and TDS becomes 47.3 percent. The same borrower, the same income, the same debts, and the same property now fails the typical GDS limit.
This is the stress test in action. The household can still afford the actual payment. The lender is testing whether they can afford a higher payment if rates rise. That test is what keeps many prime approvals within narrower bounds than the contract payment alone would suggest.
What changes the outcome?
Several things move the ratios. Income is the most direct: more gross monthly income lowers both GDS and TDS. Debt is the second: paying down or eliminating a car loan, a credit card, or a line of credit can turn a failing TDS into a passing one.
Down payment size matters because a larger down payment means a smaller loan. A smaller loan means a lower mortgage payment, which lowers the largest single input in both ratios. Even a modest increase in down payment can push a file under a lender's threshold.
Amortization length also changes the payment. A longer amortization lowers the monthly mortgage payment, which lowers GDS and TDS. The tradeoff is more interest paid over the life of the loan. Some programs limit amortization length, so this option is not available on every file.
Lender tier matters too. A prime insured lender, a prime conventional lender, a credit union, and a monoline lender may all apply slightly different limits, different treatments of condo fees, and different ways of counting credit card debt. The same file can get different answers from different lenders, which is why brokers compare options rather than relying on a single calculation.
What about alternative and private lenders?
Alternative and private lenders are not bound by the same federal rules as the big banks. Some use the contract rate in their ratio calculations instead of the stress tested rate. Some place more weight on the loan amount relative to the property value, the borrower's equity, and the exit strategy than on the exact GDS and TDS numbers.
That does not mean the ratios disappear. It means the thresholds and the inputs can be different. A file that fails at a prime lender under the stress test might fit an alternative lender's program, usually at a higher interest rate or with additional fees to reflect the added risk. The math is still the math; only the line that says pass or fail moves.
How can BrokerDam help?
BrokerDam includes Canadian mortgage calculators that run the numbers using the conventions lenders expect: semi annual compounding, provincial land transfer tax rules where they apply, and the stress test built into affordability calculations. You can generate a branded PDF for the client and keep the scenario on their file.
The AI Underwriter also reads the full application package and returns GDS and TDS with the stress test applied, along with the extracted income, liabilities, and flags. It does not approve or decline. It gives you a clean starting point before you choose a lender and present the file.
You can read more about the calculators here and the AI Underwriter here.