Before shopping for a property, it is essential to know your mortgage borrowing capacity. Financial institutions use precise ratios to determine the maximum amount you can borrow. Here is how it works in 2026.
1. GDS (32%) and TDS (40%) Ratios
Lenders use two ratios to evaluate your payment capacity:
GDS — Gross Debt Service Ratio
The GDS compares your housing costs to your gross income. It must not exceed 32% of your gross monthly income.
TDS — Total Debt Service Ratio
The TDS compares all your debts (housing + others) to your gross income. It must not exceed 40% of your gross monthly income.
Summary: GDS ≤ 32% (housing costs only) and TDS ≤ 40% (all debts). These are the limits used by CMHC and most lenders.
2. The Stress Test
Since 2018, all buyers (even those with a down payment of 20% or more) must qualify at the stress test rate. This rate is the higher of:
- The contractual rate + 2%
- The Bank of Canada floor rate (5.25% in 2026)
For example, if your mortgage rate is 4.5%, you must qualify at 6.5% (4.5 + 2). Since 6.5% is higher than 5.25%, 6.5% will be used for the calculation.
Impact: The stress test reduces your borrowing capacity by approximately 20% compared to a calculation based solely on the contractual rate.
3. GDS and TDS Components
Here is what goes into the calculation of each ratio:
| Component | GDS | TDS |
|---|---|---|
| Mortgage payment | Yes | Yes |
| Property taxes | Yes | Yes |
| Heating (approx. $100/month) | Yes | Yes |
| 50% of condo fees | Yes | Yes |
| Car loan | No | Yes |
| Credit card payments (3% of balance) | No | Yes |
| Line of credit | No | Yes |
| Student loan | No | Yes |
| Alimony/child support | No | Yes |
4. Calculation Example ($80,000 Gross Income)
Let's take a buyer with a gross annual income of $80,000 ($6,667/month), no other debts, with a 10% down payment:
| Parameter | Value |
|---|---|
| Gross monthly income | $6,667 |
| Maximum GDS (32%) | $2,133/month |
| Less: Property taxes (±$300/month) | - $300 |
| Less: Heating (±$100/month) | - $100 |
| Maximum mortgage payment | $1,733/month |
| Stress test rate (6.5%) | 6.50% |
| Amortization | 25 years |
| Approximate maximum mortgage | ±$290,000 |
| Down payment 10% | ±$32,000 |
| Maximum purchase price | ±$322,000 |
Note: This calculation is approximate. The exact amount depends on your credit file, other debts and your lender's specific policies.
5. Amortization Impact (25 vs 30 Years)
The 30-year amortization is available for first-time homebuyers (new construction). Here is the difference for a $300,000 mortgage at 5%:
| Criteria | 25 Years | 30 Years |
|---|---|---|
| Monthly payment | $1,745 | $1,601 |
| Monthly savings | — | $144 |
| Total interest paid | $223,500 | $276,360 |
| Additional cost (interest) | — | + $52,860 |
Note: The 30-year amortization reduces monthly payments but costs significantly more in interest over the total loan period.
6. HBP and FHSA Programs
HBP — Home Buyers' Plan
The HBP allows you to withdraw up to $60,000 from your RRSPs to buy your first home (or if you have not been a homeowner for 4 years). The amount must be repaid to your RRSPs over a 15-year period.
FHSA — First Home Savings Account
The FHSA combines the advantages of RRSPs (tax deduction on contributions) and TFSAs (tax-free withdrawals). You can contribute up to $8,000 per year, for a lifetime maximum of $40,000.
Tip: You can combine the HBP and FHSA for a maximum down payment of $100,000 ($60,000 HBP + $40,000 FHSA) as a first-time buyer.
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