What is a debt-to-income ratio?

When you apply for a loan or a credit card in Canada, lenders look at your DTI ratio—along with other factors such as your credit score—to assess your borrowing risk, or how likely you are to repay your debt. 

How to calculate your debt-to-income ratio

1. Add up your monthly fixed payments, including credit card minimum payments, rent/mortgage, student loans, car loan, other loan payments, child support, etc. 
2. Divide the total by your gross (pre-tax) monthly income from all sources, including employment, pension, etc. 
3. Multiply the result by 100 to get a percentage. 

Say your monthly debt payments total $2,000, and your monthly gross income is $5,000. Here’s how to calculate your debt-to-income ratio: 

$2,000 ÷ $5,000 = 0.4

0.4 x 100 = 40%

In this scenario, you would owe $0.40 for every $1 you earn. 

Example: “Xiaolan is planning to buy a condo in a few years, so she is working hard to lower her debt-to-income ratio well before she applies for a mortgage.”

Read more about debt:

• How to calculate your debt-to-income ratio—and why you should know this number
  How would you assess your financial situation? Check out this guide to figuring out your debt-to-income ratio and the importance of knowing your DTI ratio.
• The MoneySense Guide to Debt Management: How to get out of debt
  Are you wondering how to get out of debt? Maybe you’ve heard that deferring mortgage payments or consolidating what you owe can help. This guide will help you understand your options and get on the right path to pay down your debt.
• Debt management: How I got help to take control of my debt
  Debt management can seem daunting, if not impossible. However, with the right plan and a goal in mind, Jackie paid off her debt and got a fresh start.

• How long do debt collectors try to collect in Canada?
  Wondering what you can do about endless calls from debt collectors? Learn about the limits to debt collection in Canada and your rights. 
• Understanding mortgage affordability
  Mortgage affordability provides an estimate of how much money you can afford to borrow for a home. Learn more about how your income, expenses and debts influence what you can get as a mortgage.

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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