Humber/Ontario Real Estate Course 4 Exam Practice

What is the Gross Debt Service (GDS) ratio when a buyer’s monthly payment is $1,800, and their annual income equals $67,000?

1. 14.5%

2. 31.2%

3. 32.2%

4. 33.2%

5. 30.8%

6. 29.5%

The correct answer is: 32.2%

To understand the Gross Debt Service (GDS) ratio, we start by calculating the monthly income and then the GDS ratio itself. The GDS ratio is a measure of the proportion of a borrower's income that goes towards housing costs, including mortgage payments, property taxes, and heating costs. In this case, we are given that the monthly payment is $1,800, and the buyer's annual income is $67,000. First, we convert the annual income to a monthly figure: \[ \text{Monthly Income} = \frac{\text{Annual Income}}{12} = \frac{67,000}{12} \approx 5,583.33 \] Next, we calculate the GDS ratio using the following formula: \[ \text{GDS Ratio} = \frac{\text{Monthly Housing Costs}}{\text{Monthly Income}} \times 100 \] Substituting in the values: \[ \text{GDS Ratio} = \frac{1,800}{5,583.33} \times 100 \approx 32.2\% \] Thus, the GDS ratio is approximately 32.2%. This percentage indicates that about 32