Humber/Ontario Real Estate Course 3 Exam Practice

Buyer Wallace earns $75,000 annually. If his annual principal and interest payments amount to $22,000 and the yearly taxes are $2,500, what is his Gross Debt Service (GDS) ratio?

1. 26%

2. 29.3%

3. 30.6%

4. 33%

The correct answer is: 33%

To determine the Gross Debt Service (GDS) ratio, you need to calculate the total annual housing costs, which include the principal and interest payments as well as property taxes. The GDS ratio is then calculated by dividing these total costs by the buyer's gross annual income. In this case, Wallace's annual principal and interest payments are $22,000, and the yearly taxes are $2,500. To find the total GDS costs, you add these two amounts together: Total housing costs = Principal and Interest + Taxes Total housing costs = $22,000 + $2,500 = $24,500 Next, you divide this total by Wallace's annual income of $75,000: GDS ratio = Total housing costs / Gross annual income GDS ratio = $24,500 / $75,000 Calculating this gives: GDS ratio = 0.3267, or 32.67% However, when converted to a percentage, this rounds closely to 33% when considering standard rounding rules for such calculations. This is why the GDS ratio reflects option D as the correct choice. The GDS ratio is essential in real estate, as it helps lenders assess a borrower's ability to manage