What is Debt-to-Income Ratio?

A debt-to-income ratio is a measure that compares the amount of debt you have to your overall income.

When looking at your personal finances home loan originators and other financial institutes use this ratio to measure your ability to manage payments each month and to repay the money that you have borrowed.

A low debt-to-income ratio demonstrates a good balance between debt and income. In general, the lower the percentage, the better the chance you will be able to get the loan or line of credit you want.

If you have a high debt-to-income ratio it signals that you might have too much debt for the income you have, and lenders view this as a sign that you won't be able to take on additional repayments.

How to calculate debt-to-income ratio

To calculate your debt-to-income ratio, add up your total recurring monthly obligations, such as bond repayments, student loans, car loans, child maintenance, and credit card payments, and divide by your gross monthly income- the amount you earn each month before taxes and other deductions are taken out.