The core difference between Payment-to-Income (PTI) and Debt-to-Income (DTI) lies in the specific financial components each ratio assesses to gauge a borrower's financial health.
Understanding Payment-to-Income (PTI)
The Payment-to-Income (PTI) ratio is a financial metric used to appraise a borrower's capacity based on off-debt payments and their gross income. When calculating PTI, one divides the total debt by the gross income.
- Appraisal Basis: Primarily considers off-debt payments and gross income.
- Calculation: Total debt divided by gross income.
Understanding Debt-to-Income (DTI)
The Debt-to-Income (DTI) ratio, on the other hand, provides an estimation of a borrower's ability to manage their debt obligations. It is calculated based on the borrower's total debt and their annual earnings.
- Appraisal Basis: Primarily considers total debt and annual earnings.
