Humber/Ontario Real Estate Course 4 Exam Practice

How is a 28% gross debt service ratio determined when annual income is $75,000 and monthly PIT is $1,750?

1. 32.5%

2. 28%

3. 43%

4. 31%

5. 25.5%

6. 35%

The correct answer is: 28%

To determine if the gross debt service (GDS) ratio is 28% with an annual income of $75,000 and monthly principal, interest, and taxes (PIT) of $1,750, the calculation involves comparing the monthly housing costs against the monthly income. First, you need to convert the annual income into a monthly income. Dividing $75,000 by 12 months gives a monthly income of $6,250. Next, the GDS ratio is calculated by dividing the monthly housing costs (PIT) by the monthly income: GDS Ratio = (Monthly PIT / Monthly Income) * 100 GDS Ratio = ($1,750 / $6,250) * 100 GDS Ratio = 0.28 * 100 GDS Ratio = 28% This indicates that 28% of the monthly income is being used to cover the housing costs, which fits the definition of the GDS ratio. A GDS ratio of 28% is considered the maximum threshold for ensuring affordability in relation to housing expenses, as lenders typically look for this benchmark when assessing loan applications. The calculation confirms the importance of the GDS ratio in financial assessments for potential homebuyers, enabling them