Debt Income Ratio

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and notes

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Debt Income Ratio

Debt Income Ratio =

Total monthly debt

Gross monthly income

INTERPRETATION

The debt income ratio shows the total debt amount in proportion to net income. It shows what percentage of your income is being paid out in monthly debt payments for credit cards, loans, and mortgages.

Note: expanded calculation

Divide total monthly debt payments by gross monthly income

EXAMPLE

M&M company’s monthly credit card bills are $1,000, car loan payments are $500, and a monthly mortgage payment of $1,500. Their total monthly debt obligations equal $3,000. M&M’s annual income is $60,000, and their debt to income ratio:

Debt Income Ratio = $3000 / ($60,000/12) = .60 = 60%

This would be considered a high debt to income ratio

BENCHMARK: HA, PG, EB, ROT

Lenders have varying maximum DTI ratios, but a general rule of thumb is to keep your overall debt-to-income ratio at or below 43%.

A low debt-to-income ratio makes it likely that you will be approved for a loan because it indicates that your monthly debt payments are a small percentage of your monthly income.

Debt Income Ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.