What is a debt-to-income ratio?
Your debt-to-income (DTI) ratio is what it sounds like: a ratio that measures your debts relative to your income. It’s often part of the equation when lenders assess home loan applications, as higher DTI loans are seen as riskier.
How do I work out my debt-to-income ratio?
The most common way to calculate your DTI in Australia is to simply divide your total debts by your gross income.
Say you have a $500,000 home loan and a $50,000 personal loan. If your before tax income is $100,000 p.a., by this measure your DTI is 5.5 ($550,000/$100,000).
This is the equation the Australian Prudential Regulation Authority (APRA) uses to define debt-to-income.
What debt and credit facilities are considered in your DTI?
When calculating your debt-to-income ratio, financial institutions may consider:
- Home loans and personal loans
- Investment loans, like line of credit or margin loans
- Micro-financing or instalment plans like buy now, pay later (BNPL) services
- HECS-HELP debt
- Credit card debt (you may be assumed to have fully maxed out your credit card limit)
How do lenders use your debt-to-income ratio?
Lenders generally use your DTI ratio to help assess your creditworthiness. That is, whether you’re a suitable borrower.
A higher DTI may limit the amount you can borrow, see your application referred to the lender’s credit department, or even lead to outright rejection.
Since February 2026, APRA has capped high DTI lending at 20% of all new mortgages written at Australian banks. It considers a high DTI to be above six, and different caps apply to owner-occupier home loans and investment home loans, with the latter more commonly written to high DTI borrowers.
What are the DTI limits at the big four banks?
DTI limits and policies vary between lenders and are subject to change.
The big four banks aren’t public about their respective policies, but the information is commonly available through broker channels.
In general, a DTI above six or seven is considered high, and could mean an application has to be manually approved by the bank’s credit department.
There are also often upper limits. For example it has previously been reported that one particular big four bank generally won’t write a home loan that would push a borrowers DTI over eight.
High DTI home loans in Australia: What to know
If you’re looking for a high DTI loan, non-bank lenders can sometimes be more flexible than banks.
That’s because non-banks aren’t regulated by APRA, so don’t need to abide by its rules, and may have less strict DTI policies.
However, non-banks are still bound by responsible lending laws, so you’ll still always have to prove you’re capable of paying back a home loan.
Mortgage brokers can be particularly useful for high DTI borrowers. Brokers are generally aware of various lenders’ DTI policies and limits, so your broker should have a good idea which are most likely open to your business.
What can you do if you have a high debt-to-income ratio?
While borrowers with high DTI ratio are often able to take out a home loan, in general, the lower your DTI, the more choice you’ll have.
If you think your DTI ratio could be a problem, there are a few strategies that could help improve it:
- Apply for a smaller loan. The bigger the loan you’re applying for, the more it will add to your DTI ratio.
- Reduce your other debts. Paying off any credit card debt or personal loans prior to applying for a home loan can also decrease your DTI.
- Get rid of your credit cards or reduce your limits. Lenders sometimes assess your debts based on your credit card limit, assuming you’re maxed out all the time. Reducing your limits or getting rid of the card entirely may help quickly reduce your DTI.
- Get a side hustle. ‘Just earn more’ might seem like inane advice, but a side hustle could supplement your salary and improve your DTI.
