Do You Know Your Debt To Income Ratio?

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Debt/Equity

Your debt to income ratio shows your financial health and lenders use this ratio to evaluate your creditworthiness. This ratio tells lenders what percentage of your monthly income can be used for your loan payments (or mortgage payments).

As it sounds, your debt to income ratio compares your debt to income. This is a monthly figure. To calculate debt to income ratio, take your monthly debt payments (minimum payments) and divide it by your gross monthly income.

Example: Monthly debt payments include:

  •  Credit card payments, loan payments, car payments etc.
  • Don’t forget to add investment income
  • Commission
  • Rental income etc

Let me give you an example. Let’s say your gross (before taxes) monthly income is $1000

And your monthly payment is $100. Your debt to income ratio is $100 divided by $1000 = 10%.

Tips: When you add monthly mortgage payment to above to above calculation, it becomes the back end debt ratio. If you remove monthly mortgage payment, it becomes the front end debt ratio. Front end debt ratio tells lenders how much monthly mortgage payment you can afford. To qualify for a mortgage, you would require something like 25% to 28% front end debt ratio. With a mortgage, back end ratio should not go beyond 45%. So you can see that in general the lower your debt to income ratio, the better you are healthy financially.

First Published: Oct 17, 2007 ADawnJournal.com

Still paying banking fees?

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Stop Paying Bank Fees

Are you still paying banking fees? If you are, you should look at free banking options. A monthly fee of $12 or $15 can trun into a considerable amount over the years. Follow these steps to eliminate banking fess.

A. Consider banking online with a finanicial institution who gives you lots of value added services. An example is President Choice Financial. I get free checks (which TD, CIBC would never give) and earn at least $100 in free groceries just for using their services. It's like a double-dip bonus. I am banking free and getting free money for free banking.

B. If you are not comfortable with online banking, find out what is the threshold to avoid bank fees at you local branch. Usually this threshold level is $1000 but it can vary bank to bank. Shop for the best deal and never pay any transaction,ABM or checking fees.

C. Financial Consumer Agency of Canada (FCAC) provides interactive tools, cost of banking guide and information about different types of accounts and banking service packages available in Canada on their website. Click on the above link and then click on For Consumers and it will take you to a page where you can do your research on banking and other financial products and services.
First Published: June 22, 2007 ADawnJournal.com

How Long It Takes to Double Your Money?

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Double Your Money

Have you ever looked at your savings account statements and wondered how long would it take to double your money at interest rates mentioned on those statements? By using a simple formula, you will be able to figure it out very fast.

This simple formula is called The Rule of 72. The rule works when your interest rate is compounded annually and you are not taking out any money or interests from your account. To find out how long it will take to double your money, take your interest rate and divide 72by your interest rate. Yes, 72is the magic number here. Let's say your high interest savings account is paying you 3% interest, divide 72 by 3 and it comes to 24 years. If you add more money every month to your capital, your money will double in lesser years. If you have a mutual fund which returns roughly 10% annually, your money will double in 7.2 years. Don't be discouraged by these long years. Investment is a discipline and you should not expect miracles to happen overnight.

First Published: Apr 17, 2007 ADawnJournal.com