Which debt service ratio measures total monthly debt payments as a percentage of gross monthly income?
Correct Answer
C) Total Debt Service (TDS) ratio
The Total Debt Service (TDS) ratio measures all monthly debt payments (housing costs plus other debts like credit cards, loans, etc.) as a percentage of gross monthly income. The GDS ratio only includes housing-related costs, while TDS provides a comprehensive view of all debt obligations.
Why This Is the Correct Answer
The Total Debt Service (TDS) ratio specifically measures all monthly debt payments as a percentage of gross monthly income. This includes housing costs (principal, interest, taxes, heating) plus all other debt obligations like credit cards, car loans, student loans, and personal loans. Canadian lenders use TDS as the comprehensive debt measurement tool, typically requiring it to remain below 42-44% for conventional mortgages. This aligns with OSFI's B-20 guidelines for federally regulated lenders and provincial lending standards.
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