1. What is the Debt Service Ratio?

The Debt Service Ratio (DSR) measures an individual's or household's ability to manage debt payments. It calculates debt payments as a percentage of total income, providing insight into financial health and debt burden.

2. How Does the Calculator Work?

The calculator uses the DSR formula:

Where:

• \( TD \) — Total debt payments ($)
• \( TI \) — Total income ($)

Explanation: The equation calculates what percentage of your income is dedicated to debt repayment each month.

3. Importance of DSR Calculation

Details: Lenders use DSR to assess loan eligibility, with lower ratios indicating better financial health. A DSR below 35-40% is generally considered manageable in Canada.

4. Using the Calculator

Tips: Enter your total monthly debt payments and total monthly income in Canadian dollars. Include all recurring debt obligations (mortgage, car loans, credit cards, etc.) and all sources of income.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Debt Service Ratio in Canada?
A: Most Canadian lenders prefer a DSR below 40%, with some stricter lenders requiring below 35%.

Q2: What debts should be included in the calculation?
A: Include all recurring debt payments: mortgage/rent, car loans, credit card minimum payments, student loans, and other personal loans.

Q3: How does DSR differ from debt-to-income ratio?
A: DSR focuses specifically on debt payments as a percentage of income, while debt-to-income ratio considers total debt obligations relative to income.

Q4: Why is DSR important for mortgage applications?
A: Canadian lenders use DSR to determine if borrowers can comfortably manage additional debt payments alongside existing obligations.

Q5: Can DSR be too low?
A: While extremely low DSR indicates strong financial health, some debt can be beneficial for building credit history when managed responsibly.