How should you calculate your debt ratio? The calculation is very simple anyone can do it. The debt ratio is calculated as follows. You have to accumulate and add up all of your monthly loan payments, then divide them by the total amount of your income.
What is the debt ratio?
The debt ratio is a given indicator that allows the granting of a consumer loan or a home loan or even a loan repurchase. The debt ratio criterion is defined by each bank in order to determine whether borrowers who request a loan are eligible for the granting of a loan offer.
This correlation is obtained after having calculated them. We start from all the housing charges and the monthly payments of loans and debts of usher that you hold on your bank account and the total amount of your income. It is thanks to your income that you reimburse all of your monthly payments.
If your loan payments exceed 33% of your income, your bank cannot grant you new credit, except a revolving credit that has a high-interest rate.
On the other hand, it is the moment to make a repurchase of credits to lower your debt ratio and to carry out your real estate project or your automobile project or any other investment.
How do you calculate the debt ratio?
The charges correspond to the rent as well as the garage and the alimony paid. The monthly payments of the loans that you wish to keep, such as the monthly payment on the credit of your car or the monthly payment on your mortgage, are considered as charges and are added to the total amount of charges.
Income is wages, pensions or pensions, disability income, rental income, alimony received, (family allowances are capped at the level of the amount and age of children).
The calculation of the debt ratio is the total of the expenses divided by the total of the revenues.
Example: Total charges: we have $ 800 rent + $ 350 credits + $ 250 car credit to keep = $ 1,400 charges
Total income: $ 3,800 in wages + $ 100 in support payments received + $ 131 in family allowances = $ 4,031 in income
Debt ratio : $ 1,400 / $ 4,031 x 100 = 34.73% debt ratio.
The debt ratio according to the type of credit
The debt ratio varies according to each bank which has its own criteria. However, in general, the mortgage is capped at 33% of income for an average income. For high earners, the debt ratio for a mortgage can reach 40%. It is preferable not to go into debt beyond 25% for a mortgage because you should not lose sight of the fact that we are going to need a loan for the replacement of the car and if we do not want not to find yourself over-indebted quickly you have to anticipate the future in the short and medium-term.
For a repurchase of credit, the lenders are much more flexible, but once again each financial partner fixes its own criteria according to the quality of the file, the financial situation of each borrower. After the operation, the debt ratio can reach 45% for a grouping of loans.
The debt ratio before min and max
The so-called “before” debt ratio corresponds to the debt you have at the time you apply for a loan. There is no minimum threshold.
If you are applying for a home loan, it is preferable not to have a loan outstanding and thus to have a debt ratio of zero or very low because it is cumulative if you already have charges.
For example, you have divorced and you pay support of $ 200 for your two children, your income is $ 1,800, so your debt ratio is already 11% excluding rent.
This is not insignificant insofar as you apply for a mortgage. The higher your forward debt ratio, the less chance you have of getting your credit.
For the repurchase of loans, the rate of debt before does not have quite the same direction, but it is the same calculation. Your debt will determine the quality of your file.
If your debt ratio is low or it is less than 30% or 40% and your file contains unpaid bills, our lenders will be more attentive and ask for explanations. If your prior debt ratio is less than 50% and you are registered with the Banque de France, your file will be refused (unless the reasons are justified).
Why a debt ratio after maximum?
The debt must be limited to a certain rate so that borrowers do not cross the debt threshold. Depending on the situation of the borrowers if they are tenants or owners as well as the level of household income, debt is not taken into account in the same way.
If the couple has an income of $ 3,000, the debt ratio of 33% limits the loan charges to $ 1,000. They will have a living amount of 2000 $ to pay food taxes and all household expenses (telephone, gas, electricity, insurance, etc.). Take the example of a couple who earns $ 8,000, a third of their income represents $ 2,640, the rest of their living is $ 5,340.
The household with the highest income can bear an additional credit load, on the other hand, the household with the lowest income will have difficulty coping with it if we add an additional credit load.