Every lender in Canada asks the same two questions in the same order, then applies a stress test to both. Understanding them takes ten minutes and it is the difference between guessing and knowing.
Ratio one: gross debt service
What proportion of your gross monthly income goes to housing. The numerator is your mortgage payment, property tax, heating, and half of any condominium fee. The denominator is your gross monthly income, before tax.
Most lenders want this at or under thirty-nine percent on an insured mortgage.
Ratio two: total debt service
The same housing costs, plus every other monthly obligation: credit card minimums, car loans, lines of credit, student loans, and any support payments.
Most lenders want this at or under forty-four percent.
The lower of the two ceilings is what binds. For households with little consumer debt, gross debt service is the constraint. For everyone else, and it is most people, total debt service is what actually caps the mortgage.
The stress test, which is where the number shrinks
Both ratios are calculated at the qualifying rate, not the rate you are offered. The qualifying rate is the greater of your contract rate plus two percent, or 5.25 percent.
So on a contract rate of 4.79 percent, you are tested at 6.79 percent. That is not a small adjustment. On a twenty-five year amortisation the payment used in the calculation is roughly fifteen percent higher than the payment you will actually make, and your maximum mortgage falls accordingly.
This single rule is why people who can obviously afford a payment are told they do not qualify for it.
Working an example
A household with $130,000 of gross income, so $10,833 a month. Property tax of $3,400 a year, which is $283 a month. Heating estimated at $150. No condominium fee.
Gross debt service at thirty-nine percent gives $4,225 of total housing cost. Subtract tax and heat and you have roughly $3,792 available for the mortgage payment.
Now suppose they also have a $450 car payment and $150 in credit card minimums, so $600 of other debt. Total debt service at forty-four percent gives $4,767. Subtract tax, heat and the $600 of other debt and you have $3,734 for the mortgage payment.
Total debt service binds, barely. The payment ceiling is about $3,734, and that payment has to be calculated at 6.79 percent rather than 4.79 percent. At that qualifying rate over twenty-five years, $3,734 a month supports a mortgage of roughly $543,000.
Add the down payment and that is the purchase price. At the actual contract rate the real payment on that mortgage would be closer to $3,095, which is the gap between what you qualify for and what it costs.
Which levers actually work
Clearing consumer debt, which is usually the biggest. That $600 a month of car and card payments is costing roughly $87,000 of mortgage capacity in the example above. Paying off a car loan can therefore be worth far more than the same money added to the down payment. This is the most under-used move in the whole process.
A longer amortisation. Thirty years instead of twenty-five lowers the qualifying payment and raises the ceiling by roughly eight to ten percent. It also increases total interest substantially. It is available on uninsured mortgages and, in specific circumstances, to first-time buyers on new builds.
Getting variable income counted. If overtime, bonus or commission is a real part of your earnings, whether a lender uses it changes everything. Two years of history and an employment letter describing it as ongoing is what makes the difference. See variable income.
Adding a co-applicant. Adds their income and their debts. Sometimes transformative, sometimes neutral once their car loan is counted.
A larger down payment. Helps, but less efficiently than clearing debt, and above twenty percent it can push you into higher uninsured rates. The page on reducing a payment covers the same levers from the other direction.
What the calculation ignores
Everything about your actual life. Childcare, saving, travel, the roof you know needs replacing, and how you would feel if rates were two points higher at renewal.
The ratios are set for the lender's protection, not your comfort. Plenty of households qualify for a number that would technically work and would make the next five years miserable. Decide separately what payment you want to make, and treat the qualifying figure as a boundary rather than a goal.
The calculator below runs the same two ratios at the qualifying rate, so you can see where your ceiling sits and watch what happens when you clear a debt. Then get the number confirmed with a reviewed pre-approval.