What does the term "debt-to-income ratio" (DTI) measure?

The term "debt-to-income ratio" (DTI) specifically measures the percentage of a borrower's gross income that is allocated to servicing debt payments. This includes all required monthly obligations such as mortgages, car loans, credit card payments, and any other debts. Lenders utilize the DTI as an important metric to gauge a borrower's financial health and ability to manage monthly payments in relation to their income. A lower DTI generally indicates a better capacity to handle debt without financial strain, which can influence lending decisions and interest rates.

Understanding DTI is crucial for both borrowers and lenders, as it highlights how much of one's income is tied up in existing debt—allowing them to assess risk levels and financial stability more effectively. In contrast, the other options present measurements or concepts that do not align with the specific definition of DTI.