A client has a gross annual income of $80,000 and monthly debt payments of $600. Using a 32% Gross Debt Service (GDS) ratio, what is the maximum monthly housing payment they can afford?
Correct Answer
C) $2,133
The GDS ratio calculates the maximum housing costs as a percentage of gross monthly income. With $80,000 annual income ($6,667 monthly), 32% GDS allows for maximum housing payments of $2,133 ($6,667 × 0.32). The existing debt payments don't affect the GDS calculation, only the Total Debt Service (TDS) ratio.
Why This Is the Correct Answer
The GDS ratio calculates the maximum housing costs as a percentage of gross monthly income. With $80,000 annual income ($6,667 monthly), 32% GDS allows for maximum housing payments of $2,133 ($6,667 × 0.32). The existing debt payments don't affect the GDS calculation, only the Total Debt Service (TDS) ratio.
Deep Dive: Understanding the Answer
The GDS ratio calculates the maximum housing costs as a percentage of gross monthly income. With $80,000 annual income ($6,667 monthly), 32% GDS allows for maximum housing payments of $2,133 ($6,667 × 0.32). The existing debt payments don't affect the GDS calculation, only the Total Debt Service (TDS) ratio.
This question tests your understanding of Mortgage & Real Estate Finance concepts that are commonly assessed on Canadian real estate licensing exams. The correct answer, “$2,133”, reflects a fundamental principle that real estate professionals in Canada must understand.
Specifically, this falls under the sub-topic of Qualification Ratios, which is an important area within Mortgage & Real Estate Finance that appears regularly on provincial licensing exams across Canada.
About Mortgage & Real Estate Finance
Mortgage types, qualification, amortization, interest calculations, and lending regulations.
Mortgage & Real Estate Finance is one of the core areas covered on Canadian real estate licensing exams, including RECO (Ontario), BCFSA (British Columbia), and RECA (Alberta). Understanding these concepts is essential for anyone pursuing a career in Canadian real estate.
Study Tips for Mortgage & Real Estate Finance
- •Master the Canadian amortization calculation method (semi-annual compounding).
- •Understand the difference between conventional and high-ratio mortgages.
- •Know CMHC insurance requirements and qualification rules.
- •Review the impact of the Bank of Canada rate on mortgage products.
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Under the B-20 stress test guidelines, what interest rate must borrowers qualify at for uninsured mortgages?
A client has a gross annual income of $80,000 and monthly debt payments of $600. What is their maximum allowable monthly housing costs using the GDS ratio?
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