In ascertaining whether a borrower has the ability to pay off his loan over time, a mortgage bank may rely on calculating a total debt ratio as part of its underwriting process. Utilizing the following information, calculate the total debt ratio. Monthly principal and interest on mortgage loan: $635, Monthly Tax and insurance payments into escrow: $125, Monthly Car lease payment (lease term is 3 years): $350, Gross monthly income: $2,500

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To calculate the total debt ratio, we need to add up all of the borrower's monthly debt payments and divide by their gross monthly income.

Monthly debt payments: $635 (mortgage) + $125 (tax and insurance) + $350 (car lease) = $1,110

Total Debt Ratio: ($1,110 / $2,500) x 100% = 44.4%

Therefore, the total debt ratio is 44.4%, which is option C. This means that almost half of the borrower's monthly gross income is going towards debt payments. This may be a concern for the mortgage bank when assessing the borrower's ability to pay off their loan over time.

In Ascertaining Whether a Borrower Has the Ability to Pay