What does a high Total Debt Service Ratio indicate about a borrower?

A high Total Debt Service Ratio (TDSR) indicates that a borrower allocates a significant portion of their income to debt obligations. The TDSR is a financial metric that assesses the proportion of a borrower's monthly income that is spent on paying off debts, including mortgage payments, credit card payments, and other loans. A higher TDSR suggests that the borrower may be more financially burdened by their existing debts, making it a crucial ratio for lenders when evaluating an applicant's creditworthiness.

Understanding TDSR is essential for both lenders and borrowers. For lenders, a high TDSR often signifies a higher risk of default, as it may indicate that the borrower has less disposable income for living expenses or unexpected costs. For borrowers, knowing their TDSR can help them gauge their financial health and the sustainability of taking on additional debt.

In contrast, the other statements do not accurately describe the implications of a high TDSR. For instance, minimal debts or effective financial management would typically be reflected in a lower TDSR, and a strong cash flow would also correlate with a lower ratio, indicating that the borrower is not heavily reliant on their income to meet debt obligations. Therefore, a high TDSR is primarily indicative of a