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You may be wondering what on earth is a TDSR ratio. It is an abbreviation for total debt service ratio. This could very well affect your mortgage application, and in some cases, bring up a negative conclusion. The TDSR is a ratio that is calculated of income and debt in a given month. For many loan lenders out there, the maximum ratio is around the 40% ball park. This means that the lenders don’t want you to spend more than 40% on debt payments including your mortgage. To be able to calculate your TDSR, you must first calculate your GDSR (gross debt service ratio). This is a ratio of the gross annual income that is spent on debt payments. This ratio should not go over 32%.
GDSR = (monthly mortgage payment + monthly taxes + heating + fees)/(monthly income)(100)
TDSR = (monthly housing payments (calculated from GDSR) + monthly debt payments)/(monthly income)(100)
FIGURE IT OUT FOR YOUR SITUATION
If you know your monthly gross income, multiply this value by 0.40. This new value is what most lenders will assume you will be able to pay towards the loan, mortgage or all your debts. From this value take away your other debts (IE: credit cards, friends loan, car loan etc..). You now have a new value, this is the amount of money you will be able to pay each month for the mortgage you will be applying for. If the mortgage loan lender feels you do not have sufficient income to pay off the mortgage, you will not be granted the mortgage.
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nice formula :), will be doing some calculations soon
Comment by Paul
— January 8, 2009 @ 6:02 pm
I calculated my TDSR using this formula :). It works, and seems to be correct as well.
Comment by Macice
— January 11, 2009 @ 5:26 pm
I will take this into account as we are looking into purchasing our first property when we get married with my Fiance. This was a great tip.
Comment by James
— January 20, 2009 @ 11:02 pm