- $1,200 rent
- $400 car payment
- $150 car insurance
- $200 in other debt repayments
When talking to a mortgage expert, Tom becomes aware of the 32% and 40% thresholds for debt service ratios. He wants to know how much of a monthly mortgage payment he will be able to afford. According to the gross debt service (GDS) ratio what is the maximum monthly mortgage payment that Tom can afford?
As the GDS does not include other debt repayments, the maximum that the mortgage payment, property taxes, heat, and 50% of condo fees can equate to is 32% of gross monthly income. 32% of (72,000/12) is $1,920.
As his expenses are expected to total: 100 + 150 + 0.5 (400) = 450, Tom is able to afford a monthly mortgage payment of 1,920 – 450 = 1,470. The correct answer is c.