Question

Mike and Teresa Garza have a monthly gross income of $5,000, but they pay $1,000 per month in taxes. They also pay $2,000 per month in various loan payments. What is their debt service ratio?

Answer 1

Answer:

40%

Explanation:

Debt service ratio is the rate at which an individual allocates a certain amount to reduce debt value till the debt is totally offset.  

In the above question, Mike and Theresa pay $2,000 to offset various loans(debts). To calculate the debt service ratio of the couple, the amount paid to service loans is expressed as a percentage of their total income.

We have,

$2,000   x   100%

$5,000

= 0.4 x 100%

= 40%

Therefore, the debt service ratio of Mike and Theresa is 40%.

Cheers.