What are the typical maximum GDS and TDS ratios set by most lenders?

The typical maximum GDS (Gross Debt Service) ratio of 32% and TDS (Total Debt Service) ratio of 40% represent commonly accepted benchmarks used by many lenders in Canada when assessing a borrower's capacity to manage their mortgage repayments along with other debt obligations.

The GDS ratio indicates the percentage of a borrower's gross income that is allocated to housing-related costs, which typically include mortgage payments, property taxes, heating costs, and sometimes condo fees. By setting this ratio at 32%, lenders ensure that borrowers are not overextending themselves financially with their housing expenses, promoting a more sustainable level of debt.

On the other hand, the TDS ratio provides a broader view of a borrower's financial health by including all debt obligations, such as personal loans, car loans, and credit card payments, alongside housing costs. The threshold of 40% is intended to ensure that borrowers have enough disposable income left after all debts are accounted for, reducing the risk of financial strain.

The reason this answer reflects common practice among lenders is that it strikes a balance between risk management for the lenders and affordability for borrowers, aligning with industry standards and ensuring that borrowers maintain a good level of financial stability.