How key inputs calculate a borrower’s debt service ratios.
To receive the best quality decisions in the shortest timeframe, here is some
information on the treatment of the key inputs used to calculate a borrower’s debt
Gross Debt Service Formula:
Principal + Interest + Taxes + HeatGross Annual Income
Total Debt Service Ratio Formula:
Principal + Interest + Taxes + Heat + Other Debt ObligationsGross Annual Income
Debt Service Ratios: CMHC restricts debt service ratios to 39% (GDS) and 44% (TDS).
Principal and Interest*: Payments should be based on the applicable amortization
period and loan amount, including the CMHC premium.
Taxes: Include the property tax amount.
Condo Fees and Site or Ground Rent: If applicable, 50% of the condominium fees must
be included in the GDS and TDS calculations. For chattel or leasehold loans, 100% of
site or ground rent must be included.
Heat Costs: Mortgage professionals are expected to ask the prospective borrower what
the monthly heating costs are for the subject property and use the actual heat cost
records, if provided by the prospective borrower. Where no history is readily available,
the heat costs used must be a reasonable estimate taking into consideration factors
such as property size, location and/or type of heating system. Such estimates are to be
based on a sound rationale, providing an accurate estimate that is reflective of the
characteristics of the property being purchased.
Other Debt Obligations:
• Other debt obligations include revolving credit (i.e. credit card debts, lines of
credit), personal loans or car loans, etc. For unsecured lines of credit and
credit cards, factor in a monthly payment amount corresponding to no less
than 3% of the outstanding balance. In determining the amount of revolving
credit that should be accounted for, lenders should ensure that they make a
reasonable inquiry into the background, credit history and borrowing
behaviour of the prospective borrower.
• For secured lines of credit, factor in an amount corresponding to at least a
monthly payment on the outstanding balance amortized over 25 years using
the contract rate (or the benchmark rate if contract rate is unknown). Lenders
may elect to apply their own internal guidelines where the result is at least
equivalent to the above.
Rental Income: Rental income can be included in the calculation of the debt service
ratios and form part of the prospective borrower’s total gross annual income. The
approach used will depend on the nature of the application for mortgage loan insurance
and information available. For instance, when the property is the subject of the
mortgage loan insurance application :
• up to 50% of gross rental income can form part of the borrower’s gross annual
income, and taxes and heat can be excluded in the calculation of debt service
• for a two-unit owner-occupied property, CMHC will consider up to 100% of
gross rental income from the secondary suite.
For investment (rental) properties that are not the subject of the mortgage loan
insurance application, net rental income can form part of the borrower’s gross annual
- The qualifying interest rate for all fixed, adjustable, and variable (standard or capped)
rate mortgages is the greater of the contract interest rate plus 2 per cent, or 5.25 per
cent. The requirement applies to all mortgage terms (each component of mortgages
with multiple interest rates must be qualified).