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?

Q: What is the correct answer to: 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?

The correct answer is 40%. Option C (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.

Q: What background knowledge is needed for this Mortgage & Real Estate Finance question?

Total Debt Service (TDS) ratio is a key mortgage qualification metric measuring the percentage of gross monthly income needed to service all debt obligations. It includes housing costs (mortgage payments, property taxes, heating, 50% of condo fees) plus all other monthly debt payments (credit cards, loans, lines of credit). Canadian lenders typically require TDS ratios below 42-44% for conventional mortgages, though this can vary by lender and loan type. This differs from Gross Debt Service (GDS) ratio, which only considers housing costs. These ratios are fundamental to mortgage underwriting standards influenced by OSFI guidelines and implemented through provincial mortgage broker legislation.

Q: What is a good way to remember the answer to this Mortgage & Real Estate Finance question?

Think of TDS as a 'Total Debt Sandwich' where you stack ALL debt payments (housing + other debts) on top of your gross income base. The sandwich gets too heavy (risky) if it exceeds 44% of the base. Remember: TDS is TOTAL (everything), while GDS is just the housing layer. When you see TDS questions, visualize stacking all debt payments into one sandwich. Add housing costs + other monthly debts, then divide by gross income. If you see only housing costs being calculated, that's GDS, not TDS.

Q: What exam tip applies to this Mortgage & Real Estate Finance question?

Always identify what ratio is being asked for. TDS = housing + ALL other debts ÷ gross income. GDS = housing only ÷ gross income. Double-check your addition of all debt components before dividing.

Q: How does this Mortgage & Real Estate Finance concept apply in real world practice?

A real estate agent is working with first-time buyers who earn $8,000 monthly but have $1,200 in student loan and credit card payments. They're looking at homes with $2,000 monthly carrying costs. The agent calculates their 40% TDS ratio and advises them they're within typical lending guidelines (under 44%), but suggests paying down some existing debt to improve their mortgage terms and increase their purchasing power for a better property.

Question

Mortgage & Real Estate FinanceQualification RatiosMEDIUM

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?

Answer Options

A

25%

B

30%

C

40%

D

45%