The gross debt service ratio is one of several metrics used to qualify borrowers for a mortgage loan and determine the amount of principal offered. The gross debt service ratio may also be referred to as the housing expense ratio or the front-end ratio.
It may also be calculated on an annual basis. Other expenses may also include monthly property tax payments, monthly home insurance payments, and utility bills.
Total monthly expenses are divided by total monthly income to calculate the ratio. Lenders also use the GDS ratio to determine how much the borrower can afford to borrow. The GDS ratio is only one component involved in the underwriting process for a loan. Many lenders require a borrower to meet specific credit score requirements for loan consideration. Student Loans. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. To calculate your TDS ratio, add all of your monthly debts and divide that figure by your gross monthly income.
What if my ratios are higher than the industry standard? The first thing to remember is that these ratio percentages are simply industry guidelines and vary from lender to lender, both within the same category of lender as well as across different types of lenders banks vs. Therefore, they are not set in stone. Some lenders will emphasize other factors when determining the validity of an applicant.
In some cases, the loan may be high-ratio which means that the down payment for that loan was less than 20 per cent , which requires it to be insured by the Canadian Mortgage and Housing Corporation CMHC or by private insurers Genworth or Canada Guaranty. This is the amount you expect to borrow from your financial institution. It may include the purchase price of your home plus the mortgage loan insurance. Down Payment. Annual Interest Rate. Annual interest rate for this mortgage. Amortization Period.
The number of years and months over which you will repay this loan. The most common amortization period is 25 years. Not to be confused with the term of your loan, which is the duration of the loan agreement you signed with your financial institution and that has to be renewed regularly. Terms are generally for 1 to 10 years. Payment Frequency. By choosing an accelerated payment frequency, you can reduce your amortization period and save thousands of dollars in interest in the long run.
For example, the accelerated bi-weekly payment allows you to pay half of your monthly payment every two weeks. You will therefore make 26 payments a year, the equivalent of one extra monthly payment a year. The number of term years. Heating Cost. Please enter an estimated value of heating cost for the property you intend to buy. Gross Debt Service Ratio is the percentage of your gross income that is required to cover housing costs. You are likely to be able to afford your home, considering your situation.
Total Debt Service Ratio is the percentage of your gross income that is required to cover housing costs and any other debt. These ratios are not considered separately. You can calculate your ratios below to see how you stack up. Remember that your mortgage lender is taking on a great deal of risk by lending you money. Knowing these two ratios can help you calculate how much mortgage you can afford. Understanding them can give you a solid idea of what you can buy, and the price range that you should consider.
Your budget almost always benefits from having lower debt ratios of all kinds.
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