Similar to the TDS Calculation, GDS or Gross Deb Service ratio takes into account your mortgage payments, heating costs, property taxes and 50% of your condo fees (if you are buying a condo).
In Canada, your GDS ratio should not exceed 32% otherwise you can have your loan application rejected or be subject to lower borrowing power.
You can use the following formula to calculate your GDS ratio
GDS = (Mortgage Payments + Property Taxes + Heating costs + 50% of Condo Fees ) / Annual Income
A real world example of this would be:
Assuming you are looking to buy a $400,000 condo and both you and your partner have a combined Annual income of $82,000.
Total Debt (per year):
- Mortgage Payments - $18,000
- Heating costs - $1000
- Property Taxes - $4000
- 50% condo fees - $2000
Total debt = $23,000
GDS = ($25,000/$82,000)
GDS = 0.30 (or 30%)
In this particular case, the GDS is 30% which is just lower than the 32% max GDS allowance by banks.
While some banks might be flexible on this 32% allowance, you should always try an calculate your GDS below the 32% max.