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Auto Loans

Consolidation3 min readFebruary 11, 2026
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Auto loans are among the most common consumer debts in Canada and have a direct impact on mortgage borrowing capacity. According to Bank of Canada data, outstanding auto loans have exceeded $120 billion nationally. The monthly car payment is fully included in the total debt service (TDS) ratio calculation, which OSFI caps at 44% of gross income under Guideline B-20. For example, a $600 monthly car payment can reduce mortgage borrowing capacity by $80,000 to $100,000 depending on the rate. The gross debt service (GDS) ratio, which considers only housing costs, is not directly affected by the auto loan, but the 39% ceiling set by OSFI also limits qualification. AMF-certified mortgage brokers in Quebec must carefully analyze their clients' debt structure, including auto loans, to optimize their application. Available strategies include early repayment of the auto loan before the mortgage application, refinancing the vehicle over a longer term to reduce the monthly payment, or rolling the balance into a mortgage refinance when sufficient home equity exists.

Auto Loans and Mortgage Qualification in Canada

In Canada, the auto loan is the second largest consumer debt after the mortgage. With new vehicle prices regularly exceeding $40,000 and financing terms stretching up to 84 months, car payments exert considerable pressure on mortgage borrowers' debt ratios. For AMF-certified mortgage brokers in Quebec, understanding this dynamic is essential for effectively guiding their clients through the qualification process.

GDS and TDS Ratios: The Role of Auto Loans

The Office of the Superintendent of Financial Institutions (OSFI), in its Guideline B-20, establishes two debt service ratios that federally regulated lenders must follow. The gross debt service (GDS) ratio measures housing costs (mortgage, property taxes, heating, 50% of condo fees) relative to gross income, capped at 39%. The total debt service (TDS) ratio adds all other debts, including auto loans, to housing costs, capped at 44%. The auto loan does not directly affect GDS, but it reduces the available margin at the TDS level, which is often the limiting factor in qualification.

Strategies to Optimize Qualification

  1. Assess the remaining auto loan balance: If the balance is under $10,000 and the borrower has sufficient liquidity after the down payment, paying off the auto loan before the mortgage application may be the most effective strategy.
  2. Refinance the vehicle over a longer term: Extending the auto loan term from 48 to 72 months reduces the monthly payment and improves the TDS ratio. Caution: this strategy increases total interest costs and may lead to negative equity on the vehicle.
  3. Roll the auto loan into a mortgage refinance: If the property has sufficient equity (refinancing is limited to 80% of value by OSFI), consolidating the auto loan into the mortgage replaces a high rate with a lower one. The AMF-certified broker must inform the client that the debt is spread over 25 years instead of 4-6 years.
  4. Defer the vehicle purchase: If the home purchase is the priority, consider postponing the vehicle purchase or replacement until after the mortgage is secured. The broker can simulate the impact on qualification.

Quebec-Specific Considerations

In Quebec, auto loans are governed by the Consumer Protection Act (CPA), which regulates automotive financing practices. Financing contracts must detail the total cost of credit, including interest and all fees. Mortgage brokers operating under the LDPSF must review these contracts to ensure the stated payment matches reality. Furthermore, the Civil Code of Quebec (CCQ) contains specific provisions regarding movable hypothecs on vehicles, which can influence early repayment strategies.

It is also important to note that some B lenders (alternative lenders) offer greater flexibility in how they treat auto loans, sometimes agreeing to exclude car payments ending within the next 12 months from the TDS calculation. The AMF-certified mortgage broker knows these nuances between lenders and can direct clients toward the most advantageous institution for their profile.

Frequently Asked Questions

How does my auto loan affect my TDS ratio?
The full monthly auto loan payment (principal and interest) is added to your housing costs (mortgage, taxes, heating, condo fees if applicable) to calculate your TDS ratio. OSFI sets the maximum at 44% of gross income. A $500/month car payment translates to roughly $65,000 to $85,000 less in mortgage borrowing capacity.
Should I pay off my car loan before buying a home?
If the remaining balance is small (under $10,000), paying it off can significantly improve your mortgage qualification. However, it is necessary to retain enough cash for the down payment and closing costs. Your AMF-certified mortgage broker can model both scenarios to déterminé the best strategy.
Is a car lease treated differently than a loan?
No, mortgage lenders treat car lease payments the same as traditional auto loan payments in the TDS ratio calculation. The full monthly amount is included. Some lenders may request the lease agreement to verify the residual balance and terms.
Can I roll my auto loan into a mortgage refinance?
Yes, if your property has enough equity. OSFI limits refinancing to 80% of the property's value. The advantage is replacing a higher auto rate (often 6-9%) with a lower mortgage rate (4-6%). However, you spread the debt over a longer term, which increases total interest paid.
Does the type of vehicle affect mortgage qualification?
The vehicle type itself has no impact, but the monthly payment amount does. A luxury vehicle with a $1,000/month payment reduces borrowing capacity more than an economy car at $350/month. The mortgage broker will only factor the monthly payment into the ratio calculations.

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Educational information only. This does not constitute financial advice under the Act Respecting the Distribution of Financial Products and Services (LDPSF). Consult an AMF-certified mortgage broker before making any financial decision.

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