Do you know your debt-to-income ratio?
Do you know your debt-to-income ratio? Is it 120 per cent? 165? 200? And what does that number even mean?
When examining your financial situation or applying for a new mortgage, knowing your debt-to-income ratio is a good indicator of where you stand compared to the majority of the Canadian population. Statistics Canada publishes a report citing the Canadian average of debt-to-income ratios, and it is simple to calculate your own.
The Globe and Mail reports that while there are several online calculators you can use to find out where you stand, there is actually also a very simple formula. Simply add up your total debt and determine what percentage that is of your annual income after taxes. Statistics Canada's last published report of Canadian's debt-to-income ratios showed the average to be 153%.
It is important to remember, however that if your ratio is higher than the average, you are not necessarily in financial trouble. Keep in mind you are measuring your entire debt load to only one year of income, and it is impossible for the average Canadian to pay off an entire mortgage in one year.