- Gross Debt Service Ratio - GDS
- A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.
For example, Jack and Jill, two law students, have a monthly mortgage payment of $1,000 (annual payment of $12,000), property taxes of $3,000 and a gross family income of $45,000. This would give a GDS of 33 %. Based on the benchmark of 30%, Jack and Jill appear to be carrying an unacceptable amount of debt.
Keep in mind that this ratio is only a very rough benchmark. The acceptance of a loan application is not solely determined by this ratio. Since this is a very simple ratio, there are a lot of subsequent factors that lenders consider. For example, even though Jack and Jill's GDS is above the benchmark, a lender may still lend to Jack and Jill because of their future earning potential as lawyers. When combined with other personal information, GDS can be a good way for lenders to screen borrowers.
Investment dictionary. Academic. 2012.
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