Here's an example that may help clarify how to calculate PI payments when a TDS is involved. Anycity Lending Inc. is assessing Buyer Gordon’s financial abilities to buy a resale home for $397,500. The borrower has an annual income of $90,000 with monthly credit card payments of $450. The property’s estimated annual property taxes are $5,600. If the borrower requires a $357,000 mortgage at 4.75%, what is the maximum monthly PI payment that the buyer can qualify for based on the lender’s 40% TDS ratio?
- First, calculate the maximum total debt payment permitted based on a 40% TDS ratio: $90,000 x .40 = $36,000.
- Next, annualize the credit card payments: ($450 x 12) = $5,400.
- Subtract both the annual credit card payments and the annual taxes from $36,000: $36,000 - ($5,400 + 5,600) = $25,000. This represents the maximum annual PI payments, which must be then divided by 12 to arrive at the monthly PI payments: $25,000 ÷ 12 = $2,083.33.
Tip: The sale price and mortgage information are extraneous and not required to arrive at the correct answer.