What You Need To Know About The Total Debt Service Ratio

What is a Total Debt Service Ratio?

Total Debt Servicing Ratio, or TDSR for short, is a measurement that tells you the percentage of gross annual income required to cover the annual costs associated with housing and all other debts you may have such as loans, lines of credit, credit cards, etc.

Why is TDSR Important?

This is how a lending institution will determine how much they can lend you when you apply for a mortgage or other type of credit product such as a home equity loan.  The lending institution wants to ensure that you will be able to afford to repay them if they lend you money.  TDSR is a way of showing your credibility, so to speak.

How is TDSR Calculated?

The ratio is calculated by adding the amount of the mortgage/loan  in question as well as the interest, property taxes, and heating costs (PITH) in addition to all the other personal debts that you have and dividing it by your current gross annual income.

So, what does this mean to me?

If your TDSR exceeds 40% then it will be difficult for you to get approved for a mortgage as you will be considered higher risk.  If you want  to be approved for a mortgage or home equity loan, you will need to work on either increasing your income or decreasing your current debt load.

An Example from Investopedia

“Jack and Jill, two law students, have a monthly mortgage payment of $1,000 (annual payment of $12,000), property taxes of $3,000, credit card balances totaling $1,000 and a gross family income of $45,000. This would give a TDS of around 36%. Based on the benchmark of 40%, Jack and Jill appear to be carrying an acceptable amount of debt.”

Use A TDSR Calculator

Check out this HSBC TDSR Calculator to determine what your TDSR is today.