When applying for a mortgage in Canada—especially with a down payment under 20%—you’ll likely encounter terms like CMHC, TDS, and debt service ratios. They’re more than just acronyms; they play a big role in whether you’re approved for your mortgage, and how much you can borrow.
Let’s break down CMHC debt ratios in plain language, how they’re calculated, and why they matter when buying a home.
🔍 What Is CMHC?
The Canada Mortgage and Housing Corporation (CMHC) is a federal agency that provides mortgage insurance to protect lenders in case a borrower defaults. This insurance is mandatory for mortgages with less than a 20% down payment and allows homebuyers to access financing with smaller upfront costs.
Learn more about CMHC Mortgage Insurance here.
But before CMHC agrees to insure a mortgage, they assess your financial situation—mainly by using something called debt service ratios.
📊 What Are Debt Service Ratios?
There are two key ratios CMHC uses to evaluate your ability to afford a mortgage:
1. Gross Debt Service (GDS) Ratio
This measures the percentage of your income that goes toward housing costs:
- Mortgage principal and interest
- Property taxes
- Heat
- (And half of condo fees, if applicable)
CMHC maximum GDS limit: 39%
2. Total Debt Service (TDS) Ratio
This is the big picture—it includes everything in GDS plus other monthly debt obligations like:
- Credit card payments
- Car loans or leases
- Student loans
- Lines of credit
CMHC maximum TDS limit: 44%
So if your GDS is under 39% and your TDS is under 44%, you’re within CMHC’s guidelines. But go over those limits, and your approval could be in jeopardy.
🔗 Use our Debt Service Ratio Calculator to see how you stack up.
🧮 How Are the Ratios Calculated?
Let’s say:
- Your gross monthly income is $7,000
- Your estimated housing costs are $2,400
- Your other debt payments total $700
GDS = $2,400 ÷ $7,000 = 34.3%
TDS = ($2,400 + $700) ÷ $7,000 = 44.3%
In this case, the GDS is within range, but the TDS slightly exceeds the 44% CMHC cap. Depending on your credit score, the lender’s policy, and the rest of your application, this could limit your options.
✅ How to Improve Your Ratios
If your numbers are close—or a little too high—you still have options:
- Reduce your debts before applying
- Increase your down payment
- Extend your amortization (e.g., from 25 to 30 years)
- Consider a less expensive home
- Include a co-borrower to increase household income
A mortgage broker can help you model different scenarios to find what works best.
💡 Why These Ratios Matter
CMHC and most lenders use these ratios to ensure you’re not overextending yourself financially. The goal isn’t to limit your options—it’s to protect you from future financial strain.
Understanding how your income and debts stack up is essential to:
- Knowing what you can truly afford
- Getting approved for the right amount
- Avoiding surprises during the approval process
Let The Local Broker Help You Find the Right Fit
Whether you’re a first-time buyer or looking to refinance, understanding your debt service ratios is one of the smartest first steps you can take. At The Local Broker, we walk you through the numbers, explain your options, and help you secure a mortgage that actually fits your life.
Use our tools, crunch the numbers, and when you’re ready,
start your application here—we’ll take care of the rest.
