- Debt-to-income ratio - or DTI - measures a borrower's total debt compared to their gross income
- It is a key metric many lenders use in assessing home loan applications
- A DTI under 6 is generally considered acceptable while a DTI over six is regarded as higher risk
Understanding debt-to-income (DTI) can help give borrowers a better chance of securing a home loan. It's a measure used by many lenders in determining your ability to service a mortgage.
What is debt-to-income ratio?
In simple terms, DTI measures the amount of total debt you'll carry divided by your gross annual income (that is, before tax).
Let's say you and your partner earn a combined annual income of $180,000 and are applying for a home loan of $750,000.
A prospective lender will use the mortgage amount along with existing debts you may have, for example:
- $750,000 (home loan)
- $15,000 (owing on a car loan)
- $2,000 (monthly limit on a credit card)
This gives a total debt of $767,000.
This figure is divided by your combined incomes, as such:
$767,000 ÷ $180,000 = 4.26
This means your total debt would be 4.26 times your total income - or a debt-to-income ratio of 4.26.
What is a good debt-to-income ratio?
Australian banks and lenders all have different debt-to-income policies, but the general rule of thumb is that:
- a DTI of under 6 is considered good or acceptable
- a DTI over 6 is seen as higher risk
Obviously, the lower the number, the better chance a borrower will have of getting home loan approval.
Debt-to-income ratings
Good/acceptable
- Excellent - Below 3.6
- Moderate - 4 - 6
Risky
- High risk - 6 or higher
- Very high risk - 9 or above
Why is debt-to-income ratio important?
DTI is a key measure lenders apply in assessing home loan serviceability, essentially a borrower's ability to meet their mortgage repayments in their current financial situation.
Lenders are unlikely to look favourably on an applicant where a high proportion of their income goes towards servicing debt.
That said, DTI is not the only metric that lenders will apply but, suffice to say, borrowers with lower DTIs will be in a much better position to have their loans approved.
See also: Mortgage lending criteria
They are also in a better position to be offered a lower interest rate as their loan will be considered lower-risk.
Lenders' DTI policies
All banks and non-bank lenders have their own criteria and policies in assessing home loan applications.
In recent years, Australian households have taken on near-record debt levels, largely on the back of increased mortgage sizes.
Some of Australia's bigger banks may consider home loan applications with DTIs between 7-9, according to their own processes. This can sometimes happen with high-income applicants who may be assessed as being able to comfortably meet their debt and living expenses.
As of 1 February 2026, the banking regulator APRA is restricting banks to offering no more than 20% of new loans to borrowers with a DTI of 6 or more in a bid to douse risks associated with climbing home prices.
Many non-bank lenders - not regulated by APRA - have their own ways to measure whether a customer will be able to meet their repayments and may not apply, or rely less, on DTI as a key metric.
How can I calculate my debt-to-income ratio?
Debt
To work out your debt-to-income ratio, you need to include the intended home loan amount and all your other debts. These can include:
- credit cards
- buy now, pay later debt
- car loans
- personal loans
- other asset finance
- investment loans
- HECS/HELP loans
- other home loans
- unpaid tax debt
- unpaid child support or alimony debts
It's worth noting some lenders will treat HECS/HELP loans differently to other forms of debt so it's worth finding out what your intended lender's policy is on student debt and how it applies to your situation.
See also: Do HECS-HELP debts affect your home loan borrowing power?
This follows a directive from APRA in 2025 allowing banks to exercise greater flexibility in how they consider HECS/HELP debt in their home loan assessments.
Income
Now, tally up all your income. This can include:
- before-tax salary/wages
- bonuses and overtime (if they are consistently part of your pay)
- any pensions or government payments
- any earnings from side hustles or freelance work (also needs to be consistent)
Some lenders may not routinely consider bonuses and overtime as part of your gross income - unless you can prove you have always received them and will remain in a position where they are paid.
Other lenders will more readily include them, particularly if you work in a profession such as emergency services or medical fields where shift-work is part of your regular job. It pays to be clear on your potential lender's policies.
Many lenders may also not count earnings from side hustles or freelance work unless you can produce evidence that you have been earning them consistently for a period of time, generally two years.
Doing the sum
When you have both numbers tallied, calculate:
Total debt (with home loan amount) ÷ total income
This will provide a ballpark figure but be aware, each lender will have different policies and procedures on what they include in their own calculations.
How can I lower my debt-to-income ratio?
This exercise may lead to the inevitable question of how you can lower your DTI to give your home loan application a better chance of being approved.
In simple terms, it comes down to lowering your debt and/or increasing your income.
Debts
Debts are a good place to start. Consider:
- making extra payments to lower debt owing
- cancelling or limiting rarely used credit cards
- consolidating existing debts to a lower interest rate so payments are reduced
- making a budget to limit spending and direct the savings to paying down debt
Income
- Look for a higher paying job or position with your existing employer
- Take on a side hustle or additional employment
- Consider income-producing investments
Finding a lender
Making an effort to bring down your debt-to-income ratio will be in your best interests when you're looking for a home loan.
But remember every lender will have different policies and procedures surrounding DTI. It always pays to shop around to find the lender who can offer the best home loan deal for your particular circumstances.
The table below may be a good place to start.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
