Final answer:
The GDS formula does indeed divide the annual mortgage payment and property taxes by the gross annual income to calculate the Gross Debt Service ratio.
Step-by-step explanation:
The statement is True.
The Gross Debt Service (GDS) ratio is a financial metric used by lenders to assess a borrower's ability to service their debt obligations. It is calculated by dividing the annual mortgage payment and annual property taxes by the gross annual income.
For example, let's say a person has an annual mortgage payment of $10,000 and annual property taxes of $2,000. Their gross annual income is $50,000. To calculate the GDS ratio, you would add the mortgage payment and property taxes: $10,000 + $2,000 = $12,000. Then divide this by the gross annual income: $12,000 / $50,000 = 0.24. This means the GDS ratio is 0.24 or 24%. Generally, a lower GDS ratio is considered more favorable, as it indicates that a smaller portion of the income is being used to cover debt obligations.