Hi Folks!
As many people are taking the advice from my April 2020 blog post and reviewing their budget, a new question has often come up: How much of my income should be designated to rent and other household expenses?
The answer is part of a calculation called TDSR (Total Debt Service Ratio). This is the percentage of your gros monthly income used for household expenses and minimum debt payments.
When you apply for a mortgage as well as some other loan types, banks and other lenders calculate your TDSR as a way to establish how much you can afford. Overall, the ideal TDSR, from a lender`s perspective, is between 30% and 45%. From a borrower’s perspective, the ideal TDSR is zero, but that only happens when there are no expenses. Here`s how to calculate your TDSR using an example of $6700/month gros income:
| EXPENSE TYPE | $ | TDSR |
| Rent or mortgage + property tax | 1250 | 18.7% so far |
| Utilities | 50 | 19.4% so far |
| Cell | 60 | 20.3% so far |
| Car payment | 330 | 25.2% so far |
| Credit card(s) | 220 | 28.5% so far |
| Line(s) of credit | 100 | 30% |
| TOTAL | $2010 | 30% TDSR |
One of the most important ways TDSR is applied is when you apply for a mortgage in Canada with anything less than 20% down payment, the mortgage must be insured (by CMHC, Genworth or Canada Guarantee) and each insurer allows a maximum TDSR in order to qualify and they sometimes change the rule to reflect how our economy is operating and to try to help keep borrowers safe.
I hope this demonstrates how to budget for changes in your life or just fine tune your finances.
Besh wishes,
DGB
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