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 Gross Debt Service (GDS) ratio of 32%?

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 Gross Debt Service (GDS) ratio of 32%?

The correct answer is $2,133. Option B ($2,133) correctly applies the GDS ratio calculation. With gross annual income of $80,000, the monthly gross income is $6,667 ($80,000 ÷ 12). The GDS ratio of 32% allows maximum housing costs of $2,133 ($6,667 × 0.32). Importantly, the existing monthly debt payments of $600 are irrelevant to GDS calculation, as GDS only considers housing-related expenses against gross income. The debt payments would factor into the Total Debt Service (TDS) ratio calculation, which is a separate affordability measure.

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

GDS (Gross Debt Service) and TDS (Total Debt Service) ratios are key mortgage qualification metrics in Canada. GDS measures housing costs (principal, interest, taxes, heating, 50% condo fees) against gross monthly income, typically limited to 32%. TDS includes GDS plus all other debt payments, usually capped at 40-44%. These ratios help lenders assess borrower capacity and comply with OSFI stress test requirements. Federal regulations under the Bank Act and provincial mortgage broker legislation require proper affordability assessment. Real estate professionals must understand these calculations to properly advise clients on purchasing power and mortgage pre-qualification requirements.

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

Remember 'GDS = Gross income × 32% = House money only.' Think of it as your 'house allowance' - like a monthly allowance that's exactly 32% of your gross pay, and it can ONLY be spent on housing costs. Other debts don't reduce this allowance, they're counted separately in TDS. When you see GDS questions, immediately identify gross monthly income, multiply by 32% (or given percentage), and ignore any mention of other debts. If other debts are mentioned, the question is likely testing whether you confuse GDS with TDS.

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

For GDS calculations: convert annual income to monthly, multiply by the given percentage (usually 32%), and ignore existing debt payments. Only housing costs count toward GDS. If debt payments are mentioned, they're likely a distractor or the question involves TDS.

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 with $600 monthly car and credit card payments. During pre-qualification, the agent explains that their maximum housing budget is $2,133 monthly based on the 32% GDS ratio, regardless of their existing debts. However, their total debt service (including the $600 existing payments plus housing costs) cannot exceed 40% of gross income ($2,667), meaning their actual maximum housing payment might be lower at $2,067 ($2,667 - $600) depending on lender TDS requirements.

Question

Mortgage & Real Estate FinanceQualification 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 Gross Debt Service (GDS) ratio of 32%?

Answer Options

A

$1,733

B

$2,133

C

$2,400

D

$2,667