Humber/Ontario Real Estate Course 4 Exam Practice

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What does the TDS ratio account for?

Strictly mortgage and property tax obligations.
Only non-recurring debts.
Personal and recurring debts.
Insurance and maintenance costs.
Mortgage insurance but not other debts.
Household utility bills and personal loans.

The correct answer is: Personal and recurring debts.

The TDS ratio, or Total Debt Service ratio, is a crucial metric used by lenders to assess a borrower's ability to manage monthly debt payments. It encompasses all personal and recurring debts, which include mortgage payments, property taxes, utilities, credit card payments, car loans, and other long-term obligations. This ratio is used to ensure that the total monthly debt obligations do not exceed a certain percentage of the borrower's gross monthly income, typically around 40% to 44%. It is important to consider the defined components of the TDS ratio because it reflects a more comprehensive view of a borrower's financial situation, influencing lending decisions. This holistic approach ensures that borrowers are not over-leveraged and can afford their debts based on their income. For a thorough understanding, while certain options may highlight aspects of debt management, they don't capture the full scope that the TDS ratio entails, which judiciously includes various types of recurring debts.