What does the Total Debt Service (TDS) ratio measure?

The Total Debt Service (TDS) ratio is an important metric used in the mortgage industry to assess a borrower’s ability to manage their debt load. It specifically measures the percentage of a person's gross income that is allocated to cover all of their debt obligations. This includes not just mortgage payments but also other debts such as credit card payments, car loans, and any other financial liabilities.

Understanding the TDS ratio is crucial for lenders because it helps them evaluate the risk associated with lending to a borrower. A lower TDS ratio typically indicates that a borrower has a good financial cushion and can comfortably meet their debt obligations, making them a more attractive candidate for a mortgage. In contrast, a higher TDS ratio may signal potential financial strain, leading lenders to be more cautious in their lending decisions.

The other options do not accurately reflect the purpose or definition of the TDS ratio. While savings allocation, asset-to-liability ratios, and rates of return are all relevant in personal finance, they do not pertain to the specific measure of debt obligation servicing represented by the TDS ratio.