A borrower has a gross monthly income of $8,000 and monthly debt payments of $1,200. What is their Total Debt Service (TDS) ratio if their proposed housing costs are $2,000 per month?
Correct Answer
A) 40%
TDS ratio is calculated as (housing costs + other debt payments) ÷ gross monthly income. In this case: ($2,000 + $1,200) ÷ $8,000 = 0.40 or 40%. The maximum TDS ratio is typically 44% for most conventional mortgages.
Why This Is the Correct Answer
Option A (40%) is correct because the TDS ratio formula is: (total housing costs + other monthly debt payments) ÷ gross monthly income × 100. Using the given figures: ($2,000 housing costs + $1,200 existing debt) ÷ $8,000 gross income = $3,200 ÷ $8,000 = 0.40 or 40%. This calculation follows standard Canadian mortgage industry practices as outlined in lending guidelines and is consistent with OSFI's mortgage underwriting standards that influence provincial mortgage broker regulations.
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