What does the debt service ratio (DSR) measure?

The debt service ratio (DSR) is a crucial financial metric that measures the percentage of a borrower's gross income that is allocated toward debt payments, including both principal and interest. By calculating the DSR, lenders can assess a borrower's ability to manage and repay debt, which is vital for determining creditworthiness and the risk of default.

This ratio provides insight into an individual's financial health, illustrating how much of their income is committed to servicing debt obligations. A high DSR may indicate that a borrower is over-leveraged and could struggle to meet payment responsibilities, while a lower DSR generally signifies a more favorable financial situation, as it suggests that the borrower has a manageable level of debt relative to their income.

Understanding DSR is essential for both borrowers and lenders in making informed decisions about mortgage applications and approvals.