Working Through DTI
1. What DTI Actually Is
Debt-to-income ratio compares what you owe each month to what you earn, expressed as a percentage. It's a direct read on how much room you have to take on a new payment — the lower it is, the less risky you look to a lender.
Think of DTI as a financial check-up — a high number is an early warning sign, not just a lender's data point.
2. Why Lenders Care So Much
A manageable DTI tells a lender you have room to absorb a new payment; a high one suggests you're already stretched, which can mean denial or a worse rate.
Knowing your DTI before you apply helps you anticipate how a lender will see your application.
3. How to Calculate It
Add up every monthly debt payment — rent or mortgage, car loan, student loan, credit card minimums, anything recurring. Divide that total by your gross monthly income and multiply by 100.
Be thorough — small recurring payments add up more than you'd expect.
4. A Worked Example
Say your gross income is $5,000/month, and your debts are: mortgage $1,500, car loan $400, student loan $250, card minimums $150 — a total of $2,300. Divide by $5,000 and multiply by 100: a 46% DTI.
Double-check your figures with a calculator before making any decisions based on the number.
5. What Counts as Good vs. High
There's no single magic number, but most Canadian lenders want 36% or below for non-mortgage loans. Mortgage lenders look at two related figures: Gross Debt Service (GDS, ideally under 32%) and Total Debt Service (TDS, generally under 40-44%). Above 43% overall is considered high and starts limiting your options.
Aim for under 36% on personal loans, and watch GDS/TDS separately if you're also applying for a mortgage.
6. Bringing It Down
Two levers: lower your debt payments, or raise your income. Paying down existing balances, consolidating high-interest debt into one lower payment, holding off on new credit, and finding ways to earn more all help.
Attack the highest-interest debt first — it reduces your total monthly payment fastest.
7. How DTI and Credit Score Interact
DTI isn't part of your credit score directly — Equifax and TransUnion don't calculate it — but a high DTI that leads to missed payments will eventually hit your score too. Lenders look at both together for the full picture.
Keep an eye on both your score and your DTI regularly, not just when you're about to apply for something.
Quick Reference
- Always use gross (pre-tax) income for the calculation
- Include every recurring debt payment, even small ones
- Consolidating high-interest debt can meaningfully lower your DTI
- Under 36% is generally viewed favourably by Canadian lenders
- Recheck your DTI before any major loan application
- It's one factor among several — credit history and income stability matter too