Humber/Ontario Real Estate Course 4 Exam Practice

Buyer Jenkins has a yearly gross income of $75,000. Calculate Buyer Jenkins' GDS if his annual principal and interest payments are $22,000, with annual taxes amounting to $2,500.

1. 26%

2. 29.3%

3. 30.6%

4. 33%

5. 35%

6. 40%

The correct answer is: 33%

To calculate Buyer Jenkins' Gross Debt Service (GDS) ratio, you need to understand that the GDS ratio is determined by taking the total annual housing costs and dividing it by the buyer's gross annual income, then multiplying by 100 to express it as a percentage. In this case, Buyer Jenkins has principal and interest payments of $22,000 annually, and property taxes amounting to $2,500. The total annual housing costs would therefore be $22,000 + $2,500, which equals $24,500. Next, you divide the total annual housing costs ($24,500) by the gross annual income ($75,000): \[ \text{GDS} = \left(\frac{\text{Total Annual Housing Costs}}{\text{Gross Annual Income}}\right) \times 100 \] Substituting the values: \[ \text{GDS} = \left(\frac{24,500}{75,000}\right) \times 100 \approx 32.67\% \] When rounded, this gives us approximately 33%. Considering the choices available, the closest percentage to the calculated GDS is indeed 33%. Thus, the calculation confirms that the rounded