Humber/Ontario Real Estate Course 3 Exam Practice

How is the gross debt service ratio calculated for a buyer with an income of $75,000 and a monthly PIT payment of $1,750?

1. 32.5%

2. 28%

3. 43%

4. 31%

5. 26%

6. 30%

The correct answer is: 28%

The gross debt service ratio (GDS) is an important metric used by lenders to determine a borrower's ability to manage monthly payments and other housing costs. It is calculated by dividing the total monthly housing expenses by the borrower's gross monthly income and then converting that figure into a percentage. To calculate the GDS in this scenario: 1. **Determine monthly income**: Since the buyer’s annual income is $75,000, the monthly income would be calculated by dividing this amount by 12, resulting in a monthly income of $6,250. 2. **Calculate the GDS**: The monthly housing cost provided is the PIT payment (Principal, Interest, Taxes), which is $1,750 in this case. 3. **Use the GDS formula**: \[ \text{GDS} = \left( \frac{\text{Monthly Housing Cost}}{\text{Gross Monthly Income}} \right) \times 100 \] Plugging the values into the formula gives: \[ \text{GDS} = \left( \frac{1,750}{6,250} \right) \times 100 \] Performing this calculation,