What is the term for the measure of a borrower's total debt relative to their income?

The term that measures a borrower's total debt relative to their income is known as the Debt to Income Ratio. This ratio is critical in evaluating a borrower's ability to manage monthly payments and repay debts. It is calculated by taking the total amount of monthly debt payments (including mortgages, loans, credit cards, and other financial obligations) and dividing it by the borrower's gross monthly income.

A lower Debt to Income Ratio typically indicates better financial health and a higher likelihood that the borrower can make their mortgage payments, which is why lenders rely heavily on this measure when assessing loan applications. A ratio above a certain threshold may signal risk to lenders, indicating that the borrower might have difficulty managing additional debt.

While the other options are related terms used in finance and lending, they serve different purposes. The Loan to Value Ratio specifically assesses the loan amount relative to the appraised value of the property. Credit Utilization Ratio pertains to how much credit a borrower is using compared to their total available credit limit, which helps evaluate creditworthiness but is not directly related to income. The Interest Coverage Ratio is used primarily in business finance to measure a company's ability to pay interest on its debt and does not apply to individual borrowers in the same context as the Debt to Income Ratio.