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What is a total debt service ratio (TDS)? Why do you need to know this definition? The MoneySense Glossary is your resource for learning and understanding financial terms.
Total debt service ratio, or TDS, is one of two key calculations lenders use to determine how much money they are willing to lend for a mortgage. (The other is gross debt service ratio, or GDS.) The TDS calculation adds your monthly payments for credit cards and other debt, such as car loans and leases, to your expected monthly housing costs, including mortgage payments, heating bills and property taxes. The sum of these amounts is then divided by your monthly household income. Your TDS must not exceed 44%, according to the CMHC.
TDS = (Monthly debt ÷ gross monthly income) × 100
Example: “If a couple with an annual income of $120,000 applies for a mortgage with a monthly payment of $2,000 and the sum of their expected monthly heating, property tax and debt payments is $1,400, their total debt service (TDS) ratio will be 34% ($3,400 monthly expenses divided by $10,000 monthly income).”
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