Disposable/Discretionary income
From Wikipedia, the free encyclopedia
Disposable income is gross income minus income tax on that income.[1]
Discretionary income is income after subtracting taxes and normal expenses (such as rent or mortgage, food, car payments, and insurance) to maintain a certain standard of living.[2] It is the amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of:
-
- Discretionary income = Gross income - taxes - necessities
[edit] Use of discretionary income in high-income loan applications
When applying for a loan (mortgage, consumer loan), lenders may take into consideration a high-income applicant's discretionary income in order to assess the loan repayment capacity of the applicant. Discretionary income provides the lender with more information on the applicant's capacity to repay than the debt-to-income ratio in the case where the applicant has a lot of debt, but also a lot of income, such that the percent of available income may be smaller than normal standards would allow, but the actual amount of money is still large.[3]
[edit] References
- ^ BEA : Disposable personal income
- ^ Linden, Fabian (1998). A Marketer's Guide to Discretionary Income (abstract). US Department of Education. Retrieved on 2007-12-27.
- ^ Donav, Stef (undated). No-doc loans let you get a mortgage when you don't fit the mold. pmbgloans.com. Retrieved on 2008-01-14.
[edit] External links
- A simple discretionary income calculator -- even though this says it's measuring "disposable income," using the economist's language, it's discretionary income.
- US Bureau of Economic Analysis - Chart of American Disposable Income
 |
This economics or finance-related article is a stub. You can help Wikipedia by expanding it. |
