Debt to income ratio is a financial measure that will compare your monthly debt payment to your aggregate income. It is the portion of your gross pay that goes to the payment of your debts every month.
DTI Formula and Calculation
DTI ratio is one of the metrics that creditors and other lenders use to gauge your capacity to manage monthly payments and repay debts.
DTI = Total of Monthly Debt / Gross Monthly Income
Total of Monthly Debt Payments
- Calculate the sum of your debt payments every month, which includes your credit card payments, loans, and mortgages
- Divide the sum of your debt payments every month by your gross pay.
- Multiply the result by 100 to achieve a percentage value of your DTI
- Debt to income ratio is the potion of your aggregate income that goes to your debt payments every month.
- In figures, 43% is termed as the highest DTI ratio that you can accumulate, yet can still get a mortgage. However, creditors will likely settle for a ratio that is lower than 36% with not more than 28% of debts accumulated by servicing mortgage or rent payment.
- If you have a low DTI ratio, it would entail a good balance between your income and debt. Besides, banks and other creditors would want to settle for a low DTIs prior to granting your loans.
What Does the DTI Ratio Tell You?
A lower debt to income ratio implies efficient management of income and debt. So. if your DTI ratio is 10%, it indicates that 10% of your income each month is intended for your debt payments. In contrast, a higher DTI ratio implies that you have a higher debt to where your gross income goes each month.
Basically, if your DTI ratio is low, it would mean that you cannot possibly cope up with paying for your debts each month; creditors, on the other hand, will likely grant your loan application in this manner. Moreover, the DTI ratio varies from depending on the creditor or lender. However, in general sense, if you have a 43% DTI ratio, you can still qualify for mortgages but you can’t possibly get a loan from a creditor. Creditors and lenders will likely prefer to approve or settle a DTI ratio lower than 28% to 36%. Thus, the lower your DTI ratio is, the better chance for you to get a loan from creditors or lenders.
Income vs. Debts
If your income cannot suffice your debt payments each month, you might need to look for alternatives that can assist you. You should not wait for the time wherein your only hope is to file for bankruptcy. There are several debt solutions that you can seek to eliminate your mounding debts.
Moreover, you can find another means to acquire added income and gain. These are feasible when you get an extra job or adopt good money habits. Furthermore, considering that you already exhausted all means, yet you can simply knock down indebtedness, you might consider a consumer proposal and other debt solutions and SEE IF YOU QUALIFY…
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.