Financial Obligation Ratio

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Financial Obligation Ratio

In personal finance, the ratio of mortgage payments, consumer debt payments, car payments and other debt to total disposable income. The financial obligation ratio shows how easily a person can make his/her debt service each month. This shows how likely a person is to default, which may affect his/her ability to take on more debt.
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Separating homeowner and renter financial obligations also allows the creation of a renter financial obligations ratio. In general, renters have less income than do homeowners and are more likely to have trouble repaying their financial obligations.
The financial obligations ratio for renters is substantially higher than that for homeowners (chart 4).
The new household financial obligations ratio, introduced in this article, adds rent, auto lease payments, and other recurring obligations to the household debt service ratio.
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