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Question: Someone told me to use my DTI (debt to income ratio) as a tool to choose between fixed and floating home loan. How can I do that?

Answer: You can use DTI as a yardstick to know if you can manage the fluctuating EMI repayment of your home loan. If your DTI is less than 30-35 then you are more likely to have the capacity to absorb the interest rate fluctuation of a floating interest rate loan. For example if you earn Rs. 50,000 per month and pay Rs. 10,000 as your car loan EMI, Rs. 5000 for monthly utility bills and Rs. 5000 as other miscellaneous expenses. This means your total monthly debt is Rs. 20,000. DTI can be calculated using the formula, Monthly debt/monthly income*100 = 20,000/70,000 *100= 40. So in this case opting for a floating rate of interest will be risky.

You can use DTI as a yardstick to know if you can manage the fluctuating EMI repayment of your home loan. If your DTI is less than 30-35 then you are more likely to have the capacity to absorb the interest rate fluctuation of a floating interest rate loan. For example if you earn Rs. 50,000 per month and pay Rs. 10,000 as your car loan EMI, Rs. 5000 for monthly utility bills and Rs. 5000 as other miscellaneous expenses. This means your total monthly debt is Rs. 20,000. DTI can be calculated using the formula, Monthly debt/monthly income*100 = 20,000/70,000 *100= 40. So in this case opting for a floating rate of interest will be risky. Source: CoolInterview.com

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