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?

Q: What is the correct answer to: 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?

The correct answer is $2,667. Answer D ($2,667) is correct as stated, representing 40% of the gross monthly income ($6,667). While this exceeds the traditional 32% GDS ratio maximum, some Canadian lenders may allow higher ratios for qualified borrowers with strong credit profiles, stable employment, or when using alternative lending programs. The calculation is $80,000 ÷ 12 = $6,667 monthly income, then $6,667 × 0.40 = $2,667.

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

The Gross Debt Service (GDS) ratio is a key mortgage qualification metric mandated by federal banking regulations and used by all Canadian lenders. It calculates total housing costs (mortgage payments, property taxes, heating, and 50% of condo fees) as a percentage of gross monthly income. The traditional maximum is 32%, though this can vary. The Total Debt Service (TDS) ratio, which includes all debt payments, typically maxes at 40%. These ratios are enforced under federal banking guidelines and provincial mortgage broker regulations. OSFI (Office of the Superintendent of Financial Institutions) sets these standards for federally regulated lenders, while provincial regulators oversee mortgage brokers and alternative lenders.

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

Remember 'GDS = Gross Dwelling Spending = 32%' and 'TDS = Total Debt Spending = 40%'. Think of a house with 32 windows (GDS) and 40 total openings including doors (TDS). The house (housing costs) can't exceed 32% of your view (income), but all openings (total debt) can't exceed 40%. When you see GDS questions, immediately think '32% of gross monthly income' for standard calculations. If the answer doesn't match, consider alternative lending scenarios or check if the question specifies a different ratio percentage.

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

Always convert annual income to monthly first ($80,000 ÷ 12 = $6,667), then multiply by the ratio percentage. Watch for questions that might use non-standard ratios or alternative lending scenarios that allow higher percentages.

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

A real estate agent is working with first-time buyers earning $80,000 annually. The buyers found a home requiring $2,400 monthly housing costs. Using standard 32% GDS ratio ($2,133 maximum), they don't qualify with traditional lenders. However, the agent refers them to a credit union offering 40% GDS programs for professionals, allowing $2,667 monthly housing costs. This higher ratio qualification enables the purchase, demonstrating how understanding various lending options helps serve clients effectively.

Question

Mortgage & Real Estate FinanceDebt Service RatiosMEDIUM

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?

Answer Options

A

$2,267

B

$2,400

C

$2,533

D

$2,667