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Originally Posted by Yakk
Thanks greeneyes!
The 2% number is interesting. 2% to 5% works out to a 27% to 80% annual interest rate.
27% isn't far off for a credit card -- enough to pay interest and some left over to deal with principle, and some swing-room if you are a fool and start getting penalty rates.
However, do banks pay attention to the interest rate on the debt source?
Ie, if you have a revolving line of credit at 7%, would that be factored in at 0.6% to 1% per month? (0.6% per month is a small bit bigger than 7% per year)
Is that 40% of income pre or post income tax income?
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They typically do not take into account the interest rate on revolving lines, using the % as the minimum payment. However, different institutions have different policies. For instance, every place I have worked only uses your current debts to calculate your debt to income ratio - where some others will utilize the total amount of credit you have available to you to calculate your payments. In addition, I have always used the minimum payment reported to the credit bureau - which is usually quite a bit less than the 2% minimum.
As far as the 40% goes, we use gross income - or pre-tax.
Hope this helps
