Gross Debt Service (GDS) and Total Debt Service (TDS) are ratios lending institutions and mortgage brokers use to calculate and determine if you are financially able to afford a loan. Lenders use it as a rule of thumb to give a preliminary assessment of whether a potential borrower is already in too much debt. More specifically, this ratio shows the proportion of gross income that is already spent on payments.

GDS is the percentage of your gross income that is required to cover housing costs. This percentage should not be higher than 32%.

These costs can include:

• Mortgage Payments

• Property Taxes

• Heating Expenses

As an example, let's say you had a gross monthly income of $4000 and were applying for a mortgage, the bank would look at the $1000 monthly mortgage payment, $200 monthly property taxes, and approximately $120 monthly heating cost – giving you a grand monthly total of $1320. Now to calculate the GDS, we would divide the total monthly carrying cost by the total monthly gross income – $1320 by $4500, giving us 29.3%.

TDS is the percentage of your gross income that is required to cover housing costs and any other debt. The TDS should not be higher than 40% as this ratio shows the proportion of gross income that is already spent on housing-related and other similar payments.

Receiving a ratio of less than 40% means the potential borrower has an acceptable level of debt.

As an example, let's add a monthly $100 credit line payment and a $250 monthly car payment to the previously calculated amount of $1320. This new total gives us $1670 total monthly expenses. Now dividing $1670 by $4500 gives us the TDS as 37.1% – which is considered an acceptable level of debt.

For accurate numbers please contact a mortgage specialist to assist you.

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