Humber/Ontario Real Estate Course 3 Exam Practice

What does a 28% gross debt service ratio indicate?

1. Mortgage payment is nearly half the income

2. Mortgage payment is within a reasonable range

3. Household expenses exceed income

4. Income is just enough for housing costs

5. Debt exceeds expected limits

6. Insufficient data for conclusion

The correct answer is: Mortgage payment is within a reasonable range

A gross debt service (GDS) ratio of 28% indicates that a household is spending 28% of its gross monthly income on housing-related costs, which typically include mortgage payments, property taxes, and heating expenses. This percentage is generally considered a benchmark for a healthy financial situation, as it suggests that the mortgage payment and associated housing costs fall within a reasonable range of the household's income. This ratio is important for lenders, as it helps them assess the borrower's ability to manage additional debt while still covering essential living expenses. A GDS of 28% implies that the borrower has sufficient income left over to comfortably cover other expenses, thus maintaining financial stability and reducing the risk of default. While other choices may reflect various financial situations, they do not accurately represent what a 28% GDS specifically indicates. Households with this ratio are generally viewed as being in a good position regarding their debt relative to income, allowing them to manage their overall financial obligations more effectively.