Answer a: False
This answer includes the cost of the automobile insurance ($1,200), when this cost must not be taken into account in calculating the TDS ratio. This adds two percentage points ($1,200 / $60,000 = 2%) to the new TDS.

Answer b: Correct answer
The monthly payments to finance the purchase of the car must be included in calculating the new TDS. These payments are added to the expenses already taken into account in calculating the initial TDS, which was 24%: mortgage payments, school and municipal taxes, heating and other liabilities. The TDS can be calculated as follows:

Multiplying the client’s gross income ($60,000 per year) by the initial TDS ratio (24%) yields the amount of PITH (Principal, Interest, Taxes, Heating) and other liabilities taken into account in calculating the initial TDS ratio, i.e., a total of $14,400. The car loan is the only new element, as the cost of automobile insurance is not used in calculating the TDS. This loan results in an additional financial obligation for the client of $7,200 per year ($600 per month × 12 months). Expenses to be taken into account now total $21,600 ($14,400 + $7,200). Therefore, the new TDS ratio is 36% ($21,600 / $60,000).

A more direct approach would involve determining the percentage of gross income that the client will have to set aside for the car loan, and then adding this percentage to the initial TDS. The new TDS ratio would be calculated as follows:

Percentage of gross income allocated to the car loan = ($600 per month × 12 months) / $60,000 = 12%
Previous TDS ratio = 24%
New TDS ratio = 24% + 12% = 36%

Answer c: False
This answer results from two separate errors. First, it includes the cost of the automobile insurance, whereas this cost must not be taken into account in calculating the TDS. Second, the cost of the car loan has not been annualized ($600 per month × 12 months = $7,200 per year, and not $600) before determining the portion it represents of the client’s annual gross income.

Answer d: False
All the variables to be taken into account must be expressed on the same basis (annual or monthly) before the new TDS can be calculated. Therefore, the percentage of the client’s gross income allocated to the car loan can be calculated in two ways:

On an annual basis:
$600 per month × 12 months = $7,200 per year
$7,200 per year / $60,000 per year = 12%
Which gives a new TDS of 36% (24% + 12%), or
On a monthly basis:
$60,000 per year / 12 months = gross income of $5,000 per month
$600 per month / $5,000 per month = 12%
Which also gives a TDS of 36% (24% + 12%)
But definitely not by combining annual and monthly amounts:
$600 per month / $60,000 per year = 1% (FALSE)
This would lead to the conclusion that the new TDS is only 25% (FALSE).

References

Preparation manual: Mortgage Brokerage, Exam Preparation Manual for the Mortgage Brokerage Qualification Program (MBQP), Preliminary Edition, 2021, section 6.2.3.2.

Evaluated competency sub-component in Curriculum: 1.3. Evaluate the suitability of the real estate transaction to be financed versus the client’s capacity.

Complete a mortgage brokerage transaction suited to the client’s situation and needs Competency 16-611

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