Debt-to-Income Calculator

Debt-to-income denotes a person’s or family’s debt level. Lenders use it to determine the risk factor involved in providing loans. If a person possesses a high debt-to-income ratio, they will have a lower chance of receiving a loan as they might have trouble repaying the loan. Moreover, a high debt-to-income ratio lowers your credit score, making obtaining future loans more difficult and expensive. Therefore, the acceptance of DTI differs from lender to lender.

The ratio allows borrowers to understand what percentage of their current income is being used to repay their existing debts and whether they are under the radar of credit risk or not.

If you wish to calculate your debt-to-income ratio, all you need is your monthly debt payment (which includes your existing loan EMIs and credit card EMIs) divided by your gross monthly income.

Here, the gross monthly debt is the debt payment you make each month at the time of calculating the ratio, and the gross monthly income is the income you receive on a monthly basis.

Your debt-to-income ratio is one of the major factors affecting your credit score and is important when applying for a home loan. If you have a low debt-to-income ratio, it shows your creditworthiness and also boosts your chances of getting loan approval.

Clicbrics offers you an online home loan affordability calculator and an EMI calculator, which will automatically calculate your loan eligibility based on your income and the existing EMI that you are required to pay each month with interest and tenure. In this form, the loan eligibility calculator factors in the debt-to-income ratio.

There are two types of DTI

• Front-End Ratio

In the home buying process, the front-end ratio is often referred to as the mortgage-to-income ratio. It is calculated by dividing the total monthly housing costs by the monthly income.

• Back-end Ratio

The back-end ratio includes everything that the front-end ratio includes along with any monthly debts like credit cards, student loans, etc. The back-end ratio is mostly known as the debt-to-income ratio and is used more than the front-end ratio.

• It would be best for you to monitor your debt-to-income ratio as it will help you with financial planning by keeping a tab on all your finances. It would help if you never forgot to check your DTI ratio at the time of availing of a new loan or assessing your financial status. While monitoring, if you notice that your debt-to-income ratio is high, there are certain things you can do to lower it.
• Postpone a few expenses that you know are not mandatory at this moment.
• You can increase your EMI towards a personal loan you took. Although it will temporarily boost your debt-to-income ratio, it will lower your total debt in the long run.
• Don't take any more debt or wait till your ratio stabilizes to below 35%.
• And keep track of the DTI ratio every month, as it is an easy way to notice deviations and take the right measures.