Credit cards and unsecured lines of credit are not counted at the client's actual minimum payment, because that minimum can be manipulated and understates true carrying cost. The standard practice, reflected in CMHC's own debt-service guidance, is to factor in a monthly payment of no less than 3% of the outstanding balance. A $15,000 credit card balance is therefore treated as roughly $450/month in the TDS calculation even if the statement's actual minimum payment is far lower. This is the single most common source of a TDS ratio coming in worse than a client expected, because clients think in terms of what they pay, not what the file counts.
A secured line of credit is generally treated differently: the outstanding balance is amortized over 25 years at the contract rate, or a benchmark rate if the contract rate is not known, to arrive at a notional monthly payment for debt-service purposes. Installment debt — car loans, personal loans, student loans — is more straightforward: the actual contractual payment is used, since it does not fluctuate the way a revolving balance does. Court-ordered support payments are counted at their full monthly obligation and cannot be reduced by netting against income the payer no longer receives.
Ratios measure cash flow, not net worth, so a client with substantial non-liquid assets and thin monthly cash flow can still fail GDS/TDS on paper. That said, liquid reserves — funds available after closing costs and down payment are covered — strengthen a file's overall risk picture even where they do not move the ratio itself, and are worth documenting and flagging in the submission note (final module) rather than leaving implicit.
A co-borrower is on title and on the mortgage, and their full income and debts are combined into the same GDS/TDS calculation as the primary applicant. A guarantor (sometimes called a covenantor) is not on title but is contractually responsible for the debt if the primary borrower defaults; their income can support the file's qualification even though they hold no ownership interest. Confusing the two on an application is a common and avoidable error — and it changes both the ratio calculation and what the person actually signed up for.
When TDS is the constraint, the fastest lever is usually the debt the client mentioned last or almost forgot — a car lease co-signed for a sibling, a store card carried at a small balance for years, a line of credit opened for a renovation and never closed. Paying down or closing a revolving account before submission, documented with a statement showing the zero or reduced balance, can move TDS more than restructuring the mortgage itself. Consolidating high-interest unsecured debt into the mortgage at closing is another lever, but it changes the transaction into a refinance with its own rules, covered later in this course — it is a strategy, not a free adjustment.
A client has a $20,000 unsecured line of credit with an actual minimum payment of $100/month. How should that debt typically be counted in TDS?
The standard treatment for unsecured revolving credit is a minimum of 3% of the outstanding balance per month, which is roughly $600 here — not the client's actual, often much lower, minimum payment. This exists precisely because minimum payments on revolving credit can be set low enough to disguise real carrying cost. Excluding it entirely or dividing the full balance by twelve are both incorrect treatments that would misstate the file in opposite directions.
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