Humber/Ontario Real Estate Course 3 Exam Practice

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What is the primary difference between the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios?

The TDS includes personal debts
The GDS is always higher
The TDS excludes mortgages
The GDS includes all debts
The TDS ratio is typically lower
The GDS excludes credit card debt

The correct answer is: The TDS includes personal debts

The primary distinction between the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios lies in the scope of debt considered in their calculations. GDS focuses specifically on housing-related costs, which typically include mortgage payments, property taxes, and heating expenses. In contrast, TDS provides a broader view by encompassing all personal debts, including credit cards, auto loans, and other liabilities in addition to housing costs. This means that when calculating TDS, a borrower’s overall financial obligations are evaluated, which presents a more comprehensive picture of their debt load. In contrast, GDS is more narrowly focused on ensuring that the home-related expenses do not exceed a certain percentage of the borrower's income. Understanding this difference is critical for both lenders and borrowers, as it helps assess an individual’s ability to service both housing costs and additional debts, thereby aiding in making informed lending decisions.