When you apply for credit in Canada, lenders assess whether you can carry the payments. They use debt-service and debt-to-income measures, and a co-signer's income is often part of the calculation.
| Measure | What it compares | Why it matters |
|---|---|---|
| Gross debt service (GDS) | Housing costs to gross income | Shows how much of income goes to shelter costs. |
| Total debt service (TDS) | All debt payments to gross income | Shows the overall debt load. |
| Debt-to-income ratio | Total debt to income | A broad snapshot of how leveraged a borrower is. |
| Stress test | Ability to carry payments at a higher qualifying rate | Checks whether the borrower could cope if rates rose. |
| Credit history | How debts have been repaid over time | Supports or undermines the capacity picture. |
When you apply for a loan or a mortgage in Canada, the lender does not look only at your credit score. It also assesses whether you can carry the payments. That is what debt-service and debt-to-income measures do. A co-signer is often added precisely to change that calculation, because the co-signer's income and obligations become part of the file. This page explains the concepts in general terms, without inventing specific thresholds, and explains what to confirm with the lender.
Why lenders look at capacity
Credit history tells a lender how you have handled debt in the past. Capacity tells the lender whether you can handle more debt now. The two are related but distinct, which is why a person with a good score can still be declined if their existing obligations are too large relative to their income. Lenders combine the two, along with the value of any security, to decide whether to lend and on what terms.
The Financial Consumer Agency of Canada explains borrowing and credit concepts on its loans hub, and for mortgages it publishes guidance on its mortgages page. Federally regulated lenders also work within the supervisory expectations of the Office of the Superintendent of Financial Institutions (OSFI), which publishes guidance on mortgage underwriting.
The main measures lenders use
Two ratios are especially common in Canadian mortgage lending: the gross debt service ratio, which compares housing costs to gross income, and the total debt service ratio, which compares all debt payments to gross income. A debt-to-income ratio is a broader measure of total debt against income. Lenders may also apply a stress test, which checks whether the borrower could carry the payments at a higher qualifying rate than the actual contract rate.
Different lenders use different thresholds, and the thresholds can change with regulation and market conditions. That is why this page does not print a number for each measure. The table on this page explains what each measure compares and why it matters, and your lender can tell you the specific thresholds it applies to your application.
How a co-signer changes the calculation
Adding a co-signer generally adds that person's income to the file, which can improve the ratios and help the application qualify. But it also adds the co-signer's existing debts to the calculation, and it makes the co-signer responsible for the new loan. A co-signer with high income but also high existing obligations may help less than expected, and a co-signer with strong credit but modest income may help in a different way.
Because the co-signer is on the hook, the co-signer's own future borrowing can be affected. The new debt may be counted in the co-signer's total obligations, which can reduce how much the co-signer can borrow for their own purposes. Before agreeing, it is worth asking the lender how the loan will be reported and how it will be treated in the co-signer's own debt-service calculations.
How to use this information
- List your income and all your existing debt payments before you apply.
- Ask the lender which ratios it uses and what information it needs from a co-signer.
- If a co-signer is involved, confirm that the co-signer understands the obligation and how it will be reported.
- Consider how the new payment will affect your budget if rates change.
- Ask about the stress test and the qualifying rate the lender applies.
- Get the key figures and conditions in writing before you commit.
Common mistakes
Applicants often focus on the interest rate and ignore the ratios that decide approval. Others assume a co-signer guarantees approval, when the co-signer's own debts can reduce the benefit. A third mistake is failing to account for property taxes, heating, or condominium fees, which can count toward housing costs in a debt-service calculation.
- Do not assume a good credit score is enough on its own.
- Do not ignore the co-signer's existing debts.
- Do not forget that the new payment may affect the co-signer's future borrowing.
- Do not rely on a pre-approval as a guarantee of final approval.
- Do not borrow up to the maximum the lender offers without checking your budget.
Capacity is not a single number. Lenders look at the ratio of debt to income, the ratio of housing costs to income, the borrower's credit history, and the size of any down payment or security. They also consider stability: a long employment history and a steady income are generally viewed more favourably than a recent change. A co-signer can improve the picture by adding stability and income, but the co-signer's own obligations are also added.
It is also important to understand that a pre-approval is not a guarantee. A pre-approval usually reflects an initial assessment based on the information provided at the time. If your circumstances change, or if the property appraisal or the final documentation reveals something different, the lender can revise or withdraw the offer. Treat a pre-approval as a useful planning tool rather than a promise.
If a co-signer is part of the application, everyone should understand how the loan will be reported and how it will affect future borrowing. The co-signer's own lender may count the new debt when assessing a later application, which can reduce how much the co-signer can borrow. For that reason, co-signing is a decision that should be made with the full picture in view, not only as a favour.
Finally, remember that the ratios are a tool, not a budget. A lender may be willing to lend up to a certain level, but that does not mean the payments will be comfortable. Looking at the payment as a share of your own after-tax budget, and stress-testing it against a higher rate, is a practical way to decide whether the loan is right for you.