Financial Management Flashcards
How is the GDSR and TDSR calculated?
GDSR - gross debt service ratio, should not exceed 30-32%
GDSR = monthly mortgage payment + (1/2 condo fee + property tax + heating) / gross monthly income
TDSR - total debt service ratio, should not exceed 40-42%
TDSR = monthly mortgage payment + property tax + heating + all other monthly debts / gross monthly income
What is the interest rate differential (IRD) and how is it calculated?
An individual who has a closed mortgage may have to pay up to 3 months penalty or the IRD.
IRD is a penalty for early payment of a full mortgage. It is the difference between the borrower’s stated interest rate and the rate at which the lender could currently loan the money for an equivalent term.
IRD formula = (Mortgage interest rate - current interest rate) X outstanding balance X (remaining months / 12)
