Humber/Ontario Real Estate Course 4 Exam Practice

What is the GDS (Gross Debt Service) ratio if a buyer's annual income is $55,000 and their monthly payment for principal, interest, and taxes is $1,434?

1. 29.4%

2. 31.3%

3. 32%

4. 9.5%

The correct answer is: 31.3%

To calculate the GDS (Gross Debt Service) ratio, you use the formula: \[ \text{GDS Ratio} = \left( \frac{\text{Monthly Housing Costs}}{\text{Gross Monthly Income}} \right) \times 100 \] First, determine the buyer's gross monthly income: 1. **Annual Income**: $55,000 2. **Monthly Income**: $55,000 annual income ÷ 12 months = approximately $4,583.33 Next, insert the monthly housing costs of $1,434 into the formula: \[ \text{GDS Ratio} = \left( \frac{1,434}{4,583.33} \right) \times 100 \approx 31.3\% \] This calculation shows that the GDS ratio is approximately 31.3%. The GDS ratio is crucial because lenders typically look for a GDS ratio below 32% to ensure that borrowers can manage their housing costs relative to their income.