Similar to the GDS Calculation, TDS or Total Deb Service ratio takes into account all of your debt obligations, not just the debt required to service a home loan.
In Canada, your TDS ratio should not exceed 40% otherwise you can have your loan application rejected or be subject to lower borrowing power.
You can use the following formula to calculate your TDS ratio
TDS = (Household expenses + Credit card interest + Car payments + Loan payments) / 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):
- Credit card interest - $1200
- Loan fees - $200
- Loan payments - $18,000
- Car payments - $4000
- Household expenses - $6000
- Property Taxes - $2000
- Other debt payments - $400
Total debt = $32,000
TDS = ($32,000/$82,000)
TDS = 0.39 (or 39%)
In this particular case, the TDS is 39% which is just lower than the 40% max TDS allowance by banks.
While some banks might be flexible on this 40% allowance, you should always try an calculate your TDS below the 40% max.