Debt Service Ratio

Debt service ratio is the ratio of debt service payments (principal + interest) of a country to that country’s export earnings.

The ratio of debt service (interest and principal payments due) during a year, expressed as a percentage of exports (typically of goods and services) for that year. Forward-looking debt-service ratios require some forecast of export earnings.

This ratio is considered to be a key indicator of a country’s debt burden. A country’s international finances are healthier when this ratio is low. The ratio is between 0 and 20% for most countries.

Debt service ratio include: gross debt service  ratio (GDS) and your total debt service ratio (TDS).

To calculate your Gross debt service ratio, lenders try to figure out the proportion of your income you would be paying each month to own a particular property. First, the lender will estimate your annual mortgage payments, property taxes, heating costs and 50% of your condo fees (if applicable). The lender will then add that up and divide it by your gross annual income. If the answer equals less than 32 per cent (industry standard), the lender can feel confident in your ability to pay your monthly housing costs.

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