What does the GDS ratio represent in the context of mortgage calculation?

The GDS ratio, or Gross Debt Service ratio, signifies the proportion of a borrower's gross income that is allocated to housing-related expenses. Specifically, it encompasses the monthly payment obligations such as mortgage payments, property taxes, and heating costs, expressed as a percentage of the borrower's gross income. This measurement assists lenders in evaluating a borrower's financial capacity to manage the expenses associated with homeownership before approving a mortgage application.

When assessing the GDS ratio, lenders typically use a maximum threshold, often around 32-39%, to determine if the borrower is financially stable and capable of meeting their housing costs without overextending their budget. Understanding the GDS ratio is critical for both potential homebuyers and real estate professionals when navigating mortgage options.

In contrast, other ratios and factors mentioned, such as the total debt service ratio (which includes all debt payments, not just housing), monthly payments compared to sale price (which relates more to affordability and valuation), and interest rates (which determine the cost of borrowing) serve different purposes in the context of mortgage assessment and should not be confused with what the GDS ratio specifically evaluates.