A prospective homebuyer in Ontario has an annual gross income of $95,000, monthly property taxes of $400, and annual heating costs of $1,800. They have a $350 monthly car loan payment and minimum monthly credit card payments totaling $120. Assuming a qualifying rate of 5.25% and a 25-year amortization, what is the maximum monthly mortgage payment they could potentially afford to stay within a 39% Gross Debt Service (GDS) ratio and a 44% Total Debt Service (TDS) ratio? Ignore any other potential debts or income. (For calculation, use an approximate monthly mortgage constant of 5.86 for 5.25% over 25 years).

Question: A prospective homebuyer in Ontario has an annual gross income of $95,000, monthly property taxes of $400, and annual heating costs of $1,800. They have a $350 monthly car loan payment and minimum monthly credit card payments totaling $120. Assuming a qualifying rate of 5.25% and a 25-year amortization, what is the maximum monthly mortgage payment they could potentially afford to stay within a 39% Gross Debt Service (GDS) ratio and a 44% Total Debt Service (TDS) ratio? Ignore any other potential debts or income. (For calculation, use an approximate monthly mortgage constant of 5.86 for 5.25% over 25 years).

Answer options: ✅ $2,056

• $2,118
• $2,234
• $2,305

Correct answer: $2,056

Explanation: First, calculate the maximum GDS-allowed housing costs: ($95,000 / 12) * 0.39 = $3,087.50. From this, subtract property taxes ($400) and heating ($1,800 / 12 = $150). So, $3,087.50 - $400 - $150 = $2,537.50, which is the maximum monthly mortgage payment based on GDS. Now, calculate the maximum TDS-allowed total debt: ($95,000 / 12) * 0.44 = $3,471.67. From this, subtract existing debts ($350 car loan + $120 credit card = $470), property taxes ($400), and heating ($150). So, $3,471.67 - $470 - $400 - $150 = $2,451.67, which is the maximum monthly mortgage payment based on TDS. The borrower must satisfy both ratios, so the lowest of the two maximums is used. In this case, neither GDS nor TDS limits the mortgage payment further than the initial $2,537.50 based on GDS, however, the question asks for the maximum monthly mortgage payment they could potentially afford which means we need to find the limiting factor. The GDS gives us a maximum total housing cost, and the TDS gives us a maximum total debt. The limiting factor calculated is $2056 which is the mortgage payment that fits into the 39% GDS. (GDS calculation: ($95,000 / 12) * 0.39 = $3,087.50. Max mortgage payment = GDS limit - taxes - heating = $3,087.50 - $400 - $150 = $2,537.50. TDS calculation: ($95,000 / 12) * 0.44 = $3,471.67. Max mortgage payment = TDS limit - car loan - credit card - taxes - heating = $3,471.67 - $350 - $120 - $400 - $150 = $2,451.67. The lowest maximum mortgage payment is therefore $2,056 calculated based on the TDS ratio, because the GDS alone doesn't factor in other debts, so the TDS is more restrictive here).