Mortgage Refinance

GDS, TDS and Why You Need Them For Your Mortgage

When applying for a mortgage for the first time, there are several terms and principles that you may need to familiarize yourself with. They can be factors that affect your eligibility for a mortgage loan. Lenders look into aspects of your financial statements such as your GDS and TDS to determine whether you are eligible for a mortgage loan and how much you can afford to borrow. Without proper knowledge of these financial concepts, you may end up going in blind to your mortgage deal. This can result in a person being denied a mortgage.

Besides their importance to mortgages, it is also important to know these concepts as they aid customers in understanding their finances comprehensively and making better financial decisions.

This article will guide you through what your GDS and TDS ratios are and what roles they play when you are applying for a mortgage loan.

What is Your GDS Ratio?

GDS stands for Gross Debt Service. It is a debt service measurement recorded as a ratio that is integral to determining whether a person is eligible for a mortgage as well as other financial endeavors. The GDS ratio is also known as the front-end ratio or housing expense ratio, and it represents the ratio of debt or expenses a homeowner has in contrast with their income.

In simple terms, the GDS ratio compares homeowners’ monthly expenses with their monthly income. Of these expenses, their mortgage is usually listed as the primary expense. Other expenses include taxes, utility bills, insurance, and other fixed expenses relating to your home. The expenses are then divided by the homeowners’ monthly income, which gives the ratio.

Most lenders require that customers have a GDS ratio of 32% or less to be eligible for their loans.

What is your TDS Ratio?

TDS ratio or Total Debt Service ratio is another debt service measurement. Instead of calculating the ratio of debt to income, the TDS ratio helps to determine the percentage of income spent on both housing and non-housing payments by the homeowner.

When calculating TDS, the customer’s mortgage and taxes are added up alongside other bills like student loans, alimony, and credit card debts. These are then divided by the customer’s income to determine the ratio. The TDS allows lenders to ensure that customers will be able to pay their mortgages consistently.

Mortgage lenders rarely offer loans to customers with TDS ratios that are higher than 43%.

The main difference between the GDS and TDS ratios is that the TDS ratio takes non-housing bills into account as well as housing-related bills.

Importance of GDS and TDS Ratios

Your GDS and TDS ratios are two of the most important factors that lenders use to determine whether or not a customer is eligible for a loan. These two best service measurements play many roles in your mortgage plans. The GDS and TDS ratios serve several purposes, which are discussed below:

● Lenders use these metrics to determine how much they will be able to lend you. When a customer’s financial state has been thoroughly examined using the GDS and TDS ratios, lenders can then decide on how much they can afford to lend out on a mortgage, based on the customer’s finances.

● The GDS and TDS ratios give lenders a comprehensive idea of the financial state of the homeowners which helps them make informed decisions on mortgage requests. Because the GDS and TDS ratios are displayed in plain terms, lenders can easily and quickly decide whether a person is eligible or not for a loan without too complex a process.

● GDS and TDS ratios break down the financial situation of customers to the barest minimum so that even the customers can understand their situations. It is not only the lenders that benefit from GDS and TDS calculations. Customers too can benefit from examining their GDS and TDS ratios so that they can have an idea of where their finances are and are better suited to make good and profitable financial situations, as well as make adjustments where needed.

● With the use of a person’s GDS or TDS ratio, lenders can determine whether or not they can afford to repay their loans and how much they can afford to lend to the customer so that they can comfortably repay. Lenders would not want to give mortgages to customers who will end up unable to repay them on time. The GDS and TDS ratios give lenders an idea of where customers’ money is going monthly and whether they can afford to add any more expenses to their finances.

How to Calculate Your GDS and TDS Ratios

For the GDS ratio, the formula is:

Principal payment (i.e. mortgage payments) + Property Taxes + Utilities / Gross Annual Income

For calculation of GDS, it is also often required to include 50% of the monthly fees of the home.

The formula for TDS ratio calculation is:

GDS + All other debts / Gross Annual Income

These other debts include student loans, credit card debts, car payments, insurance, child support, and any other fixed debts that a person may have.


When it comes to mortgage loans, one should never step in blind. Knowledge of how your GDS and TDS ratios affect your mortgage plan is essential to understanding how the process works and securing the best plan for yourself.

Both the GDS and TDS ratios have their importance and roles to play when trying to secure a mortgage plan. A customer with an unsavory figure on either of these is at risk of being rejected for their mortgage loan. Often, people assume that only a stable income or a strong credit score is required to be eligible for mortgage loans, which is wrong. The GDS and TDS ratios are only a few more metrics that are used to measure eligibility for mortgage loans.

Ensure that you understand the full scope of these concepts before taking the next steps in applying for a mortgage.

Mortgage and Financial experts at Best Mortgage Online helps you in every stage of mortgage, new home buying, refinance. If you also need help regarding mortgage protection plan visit sister website Insurance Direct Canada.