What does the Gross Debt Service Ratio measure?

The Gross Debt Service Ratio (GDSR) is specifically designed to measure the proportion of a borrower's income that is allocated to housing costs. These costs typically include the mortgage payment (principal and interest), property taxes, and any heating expenses. The GDSR is an important metric used by lenders to assess a borrower's ability to manage housing-related expenses relative to their income.

By focusing on housing costs, the GDSR helps determine if a borrower can comfortably afford the home they wish to purchase or refinance, ensuring that their financial obligations are manageable. A higher GDSR may indicate that a significant portion of the borrower's income is tied up in housing costs, potentially leading to financial strain. In contrast, a lower GDSR suggests that the borrower has a better balance between income and housing expenses, which may improve their overall financial stability.

The other choices reflect different financial measurements. One option discusses investments, which is unrelated to housing expenses. Another option focuses on total debt obligations, including credit cards and loans, rather than just housing costs. The final option mentions total assets, which does not pertain to how much of a borrower's income is spent on housing. Thus, the GDSR's emphasis on housing costs makes it a vital