Debt won't stop you from getting a mortgage, but it directly shrinks the amount a lender can let you borrow. Lenders cap how much of your income is used towards debt payments. Every dollar already committed to a credit card, car loan, or line of credit is a dollar that isn't available to pay off your mortgage.

Equifax Canada's Q2 2026 Market Pulse report shows that Canadians hold an average of $22,699 in non-mortgage debt—a figure that climbs with age. Those aged 36 to 45 carry $27,509 on average, while debt loads swell to $35,379 among Canadians aged 46 to 55.

Besides the amount of debt, the quality of debt impacts your eligibility for a mortgage.

How do lenders count your debt?

Lenders add your monthly debt obligations to their eligibility calculations and measure them against two debt-service ratios: Gross Debt Service (GDS) and Total Debt Service (TDS).

GDS includes housing costs only, such as your mortgage payment, property taxes, heating costs, and 50% of condo fees. TDS includes those same housing costs plus other monthly obligations, including credit cards, lines of credit, car loans, and personal loans.

For an insured mortgage, the Canada Mortgage and Housing Corporation (CMHC) caps GDS at 39% of your gross annual income and TDS at 44%.

Both ratios are calculated using the mortgage stress test. That means lenders don't check your finances against the rate you'll actually pay—they use a higher 'qualifying rate' to make sure you could still afford your payments if rates rise. The qualifying rate is your contract rate plus two percentage points, or 5.25%, whichever is higher.

Because all of your debt payments must fit within those limits, even relatively small monthly obligations can impact your borrowing power.

"In today's rate environment, [borrowers receive] about $15,000 to $20,000 less mortgage for every extra $100 a month in debt payments," says Victor Tran, mortgage and real estate expert at Rates.ca. "That's because lenders qualify [you] at the stress-test rate and cap your total debt service ratio around 44%. Every extra $100 eats directly into that 44% bucket."

Tran notes that other housing-related costs, including property taxes, heating expenses, and mortgage amortization, also affect how much a borrower can qualify for.

Read more: Nearly half of Canadians renewing mortgages spend over 50% of their budget on housing

How much does debt reduce the mortgage you can qualify for?

In general, the higher your monthly debt obligations, the smaller the mortgage you can qualify for.

For credit cards and unsecured lines of credit, CMHC states that lenders would factor in a monthly payment amount equal to no less than 3% of an outstanding balance when calculating debt service ratios. Under that formula, every $10,000 of debt translates into at least $300 in monthly debt obligations for mortgage qualification purposes.

For example:

The larger those monthly debt payments become, the less income remains available for a mortgage payment. That's why two borrowers earning the same income can qualify for very different mortgage amounts based on the amount of their existing debt obligations.

Which types of debt affects your mortgage the most?

The impact of existing debt depends less on the balance itself and more on the monthly payment lenders assign to that debt.

Any recurring debt obligation lands in your TDS ratio. But lenders don't treat every type of debt the same way.

Ranked from most damaging to least damaging, here's how common debts generally affect mortgage qualification:

"The biggest impacts are auto loans and leases, personal and student loans with set installment payments reported on the credit report, as well as credit card balances," Tran says. "Lenders take 3% of the balance as a monthly payment even if you pay in full."

Just as important are liabilities buyers don't realize will be counted.

"The most surprising to buyers are co-signed loans or lines of credit, buy-now-pay-later or store financing that shows up on the credit report, and loans or lines of credit that do not require a payment," Tran says. "Child or spousal support payments are also considered a monthly liability."

Lenders focus on monthly obligations, not total loan balances. A borrower with a $20,000 car loan and a large monthly payment may lose more mortgage room than someone carrying a larger secured line of credit.

Read more: What's the difference between a deposit and a down payment on a house?

Does debt affect your mortgage rate too?

Mostly personal debt affects the amount of mortgage you can qualify for, rather than your borrowing rate.

Large outstanding balances can indirectly influence mortgage pricing if they negatively affect your credit score. Higher credit utilization or missed payments may leave borrowers with fewer financing options and less access to the most competitive rates.

Debt can also become an approval issue, rather than simply a borrowing-power issue.

"Approval becomes more challenging when your GDS ratio is over 39% or your TDS ratio is over 44% at the qualifying rate," Tran says.

Even borrowers who remain within those guidelines can face scrutiny if other risk factors are present, such as maxed-out credit cards, multiple recent credit inquiries, missed payments, collections, consumer proposals, or previous bankruptcies, according to Tran.

Should you pay off debt before applying?

With the 3% rule, paying down credit cards and unsecured lines of credit often frees up more mortgage room per dollar than paying down other forms of debt. "Lenders mainly look at the monthly liability, not so much the outstanding balance," Tran says.

According to Tran, paying down debt makes the most sense when it helps bring your debt-service ratios within qualifying thresholds or eliminates a large monthly payment like an auto loan.

"Resort to a larger down payment if [you are] already within debt ratios and want to reduce the loan amount to pass the stress test, avoid mortgage default insurance, or improve the mortgage rate and terms," Tran recommends.

Neither strategy is right for everyone—the smarter move depends on whether your debt-service ratios or your loan size is the bigger obstacle.

"Before paying down debt, best to consult with a mortgage professional to understand current borrowing power, then strategize on how to improve it," Tran says. "Paying down debt may not help at all."

Read next: Why reverse mortgages have higher interest rates than traditional mortgages

Which debt should you pay off first?

"Typically, [first pay off] your highest monthly payment, such as car loans and personal loans," Tran says. "Then credit cards with high utilization to reduce the 3% inputted payment, then lines of credit if they're large or near limits."

As always, he recommends consulting a mortgage professional before making repayment decisions, since the best strategy depends on a borrower's overall financial picture.

How far in advance should you pay down debt?

"Two to three billing cycles before applying would be better," he says. "This gives time for credit bureaus to update and for underwriters to see stable, improved ratios."

He reiterates that debt repayment isn't always the optimal move. In some cases, borrowers may benefit more from increasing their down payment, such as when they're close to reaching the 20% threshold needed to avoid mortgage default insurance.

Read more: How to better qualify for a mortgage in Canada

Frequently Asked Questions (FAQ)

How much mortgage can debt reduce in Canada?

Debt can significantly reduce how much mortgage you qualify for because lenders include existing debt payments in their eligibility calculations. According to Victor Tran, every additional $100 in monthly debt payments can reduce borrowing power by roughly $15,000 to $20,000 in today's rate environment.

Why does credit card debt hurt mortgage approval more than other debt?

Credit card debt often has a larger impact because lenders generally count at least 3% of the outstanding balance as a monthly payment when calculating your borrowing capacity. A $10,000 credit card balance is typically treated as a $300 monthly obligation for mortgage qualification purposes.

What's the best debt to pay off before buying a house?

The best debt to pay off is usually the one creating your largest monthly payout. Victor Tran says borrowers can often improve eligibility most by paying down car loans, personal loans, or highly utilized credit cards because they have a larger impact on debt-service ratios.

When can personal debt be problematic in getting approved for a mortgage?

Debt can become an issue in getting approved for a mortgage when it pushes borrowers beyond lender qualification limits. Victor Tran says approval becomes more challenging when GDS exceeds 39% or TDS exceeds 44% at the qualifying rate.