What does the debt-to-income ratio assess?

The debt-to-income ratio is a critical financial metric used by lenders to assess a borrower's ability to manage monthly payments and repay debts. It specifically measures the ratio of a borrower’s total monthly debt payments to their gross monthly income. This ratio helps lenders understand how much of the borrower's income is going towards servicing existing debts, which includes mortgage payments, credit card payments, student loans, and other financial obligations.

A high debt-to-income ratio may indicate that a borrower is over-leveraged and may struggle to make additional loan payments, while a lower ratio typically suggests more financial stability and less risk for lenders. Therefore, option B accurately captures the essence of what the debt-to-income ratio assesses. The significance of this metric lies in its ability to provide insight into the borrower's financial health, which is crucial for lending decisions.