How is the Debt-to-Income (DTI) ratio calculated?
Correct Answer
A) Monthly debt payments divided by gross monthly income
The Debt-to-Income (DTI) ratio is calculated by dividing total monthly debt payments by gross monthly income. Lenders use this ratio to assess a borrower's ability to manage monthly payments and repay debts.
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Related Topics & Key Terms
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Related Concepts
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
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An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
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