Total Debt Service and Savings Ratio

Alyssa Furtado
by Alyssa Furtado February 6, 2013 / 5 Comments

Photo by 401(K) 2013

By now, you’ve probably heard of GDS and TDS – gross debt service ratio and total debt service ratio. But have you ever heard of TDSS?

The total debt service and savings (TDSS) ratio is a new financial measure developed by personal finance columnist Rob Carrick. While lenders measure your ability to repay your mortgage and other debt, before approving you for a mortgage loan, the TDSS goes one step further by making sure you can also save money while you pay down your mortgage. Let’s see how it works.

GDS and TDS Ratios
In order to qualify for a mortgage, lenders typically use the gross debt service (GDS) ratio and total debt service (TDS) ratio. These ratios assess your ability to repay your mortgage. The GDS looks at your housing expenses – your monthly mortgage payments, property taxes, and heating bill – versus your gross monthly income. The TDS includes your housing expenses from the GDS and adds any other debt, such as student loans and car payments. If you have a GDS of less than 32 per cent and a TDS of less than 40 per cent, you’re in good financial shape and lenders will feel comfortable knowing you can make all of your monthly payments.

TDSS Ratio
The TDSS (the extra “s” stands for savings) ratio takes the TDS ratio one step further. The TDSS ratio looks at your monthly housing expenses and any debt repayments you need to make, then assumes you will save 10 per cent from every paycheque, and divides it all by your gross monthly income. Although not yet a metric used by lenders, Carrick recommends a TDSS of less than 40 per cent. In pricier markets, like Toronto and Vancouver, you could stretch yourself to a TDSS between 40 to 50 per cent, but not without needing to reign in your discretionary spending.

Why is the TDSS Ratio Important?
The TDSS ratio ensures you don’t overextend yourself and become house poor as a result. What’s house poor? It’s when you spend more on a house than you can afford. It’s not fun being house poor – if you lost your job or had to pay for major house repairs, you could potentially have to go into debt or, worse, sell your house. The TDSS ratio gives you the financial wiggle room you need to save for emergencies and your future, while making all of your other monthly payments.

How Can I Calculate My TDSS?
The TDSS ratio is a rather simple calculation. You take your monthly mortgage payments, property taxes, heating bill and savings (10 per cent of your take-home pay), and divide it all by your gross monthly income. For example, if you had gross monthly income of $4,000, a monthly mortgage of $1,200, property taxes of $250, monthly heating bill of $150 and monthly take-home pay of $2,500, your TDSS would look like this:

$1,200 + $250 + $150 + ($2,500 x 10%)
$4,000

In this example, your TDSS would be 46.25% – much higher than the 40% Carrick recommends. If your TDSS is too high, don’t panic. By saving a larger down payment or buying a less expensive house, you can bring your TDSS inline and feel better prepared for the next time you need a new roof or the washing machine breaks down.

The Wealthy Barber David Chilton has long touted the importance of paying yourself first and saving at least 10 per cent of your take-home pay. As Canadians continue to take on record levels of debt, the TDSS is a useful measure to ensure you don’t buy more house than you can afford.


  • Definitely important to think about savings at the same time as purchasing if possible.

    One small question, what exactly is “take-home pay”?

    • RateHub says:

      Great question! Take-home pay is your gross monthly income minus federal income taxes and any other health premiums, pension contributions, union dues, etc.

  • Alli says:

    Why don’t they use net income instead? It would be a truer measure of the money you actually have to work with. Deductions can vary quite a bit.

    • RateHub says:

      Hi Alli,

      Which part of the calculation are you referring to? Lenders don’t formally use this calculation – it’s simply a guide for homebuyers to make sure they can both save money while paying down their mortgage.

      • Alli says:

        I am referring to the original debt service ratio calculations, not your new one. They start with your gross rather than net income which seems to inflate what you can actually afford. Why don’t they start with take-home dollars and do the deductions from there? It would be a more realistic measure of what you can afford.