Debt-to-Income Ratios: Why Lenders Care More During Tax Season

When applying for a mortgage in Canada, few numbers matter more than your debt-to-income (DTI) ratios. During tax season, lenders scrutinize these ratios even more closely, as newly filed tax returns can significantly affect how your income and debt are calculated.

Understanding why DTI ratios matter—and how tax season impacts them—can help borrowers prepare and qualify more confidently.

What Are Debt-to-Income Ratios?

Debt-to-income ratios measure how much of your income goes toward debt payments. In Canada, lenders focus on two key ratios:

Gross Debt Service (GDS)

Includes:

• Mortgage payments

• Property taxes

• Heating costs

• 50% of condo fees (if applicable)

Total Debt Service (TDS)

Includes everything in GDS plus:

• Credit cards

• Car loans

• Lines of credit

• Other personal debts

These ratios help lenders assess affordability and risk.

Why Tax Season Changes the Picture

Tax season introduces updated financial data, which can impact DTI ratios in several ways:

Updated Income Figures

Newly filed tax returns may show lower or higher income than previous years—directly affecting your ratios.

CRA Balances and Installments

Outstanding tax balances or required installment payments count as liabilities and can raise your TDS ratio.

Reduced Net Income for Self-Employed Borrowers

Business deductions may lower reported income, making ratios appear worse even if cash flow is strong.

Why Lenders Are More Cautious During Tax Season

During tax season, lenders:

• Require the most recent Notices of Assessment

• Verify consistency between stated income and tax filings

• Recalculate debt obligations using updated data

Any discrepancy can trigger additional scrutiny or reduced borrowing power.

How High DTI Ratios Affect Mortgage Approval

High DTI ratios can lead to:

• Lower approved mortgage amounts

• Higher interest rates

• Requests for larger down payments

• Denied applications

Even strong credit may not overcome excessive debt relative to income.

Tips to Improve DTI Ratios Before Applying

• Pay down high-interest debt

• Avoid taking on new loans

• File taxes early and accurately

• Resolve CRA balances

• Increase documented income where possible

Small adjustments can make a big difference.

Alternative Options for Borrowers With High Ratios

If DTI ratios are too high, options may include:

• Alternative or private lenders

• Longer amortization periods

• Co-signers

• Stated income programs

A mortgage professional can help assess the best path forward.

Final Thoughts

Debt-to-income ratios are always important—but during tax season, they matter even more. Updated income figures, CRA obligations, and deductions can all shift how lenders view your application.

Preparing early and understanding your ratios can help you qualify more smoothly and avoid surprises.