Humber/Ontario Real Estate Course 4 Exam Practice

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If a buyer’s annual income is $75,000 and the monthly PIT payment for a home is $1,750, what is the gross debt service ratio?

  1. 32.5%

  2. 28%

  3. 43%

  4. 31%

  5. 25.5%

  6. 35%

The correct answer is: 28%

To find the gross debt service ratio (GDS), you need to determine what percentage of the buyer's gross monthly income goes towards housing costs, which typically includes principal, interest, property taxes, and sometimes heating (PIT). First, calculate the buyer's gross monthly income by dividing the annual income by 12 months. For a buyer earning $75,000 a year, the calculation is: $75,000 / 12 = $6,250 Next, the GDS is calculated by taking the monthly PIT payment and dividing it by the gross monthly income: GDS = (Monthly PIT payment / Gross monthly income) x 100 In this scenario: GDS = ($1,750 / $6,250) x 100 = 28% This means that 28% of the buyer's gross monthly income goes towards housing costs, aligning with financial guidelines which generally suggest that a borrower should not exceed a GDS of around 28-32%, depending on the lender's criteria. Thus, the correct calculation shows that the GDS ratio for this buyer is indeed 28%.

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