Debt-to-Income (DTI) Ratio Calculator

A Debt-to-Income (DTI) ratio is a key financial metric that compares your total monthly debt payments to your gross monthly income. Lenders in Australia, particularly for home loans, use it to assess your ability to manage monthly payments and repay debts. A lower DTI ratio indicates a good balance between debt and income.

The formula is simple: DTI = (Total Monthly Debt Payments / Gross Monthly Income) * 100. The calculator sums up all your recurring monthly debt repayments (like mortgage or rent, car loans, personal loans, and credit card payments) and divides this by your total pre-tax monthly income. The result is expressed as a percentage.

• Australian banks and lenders are increasingly using DTI as a critical measure for loan serviceability, often in conjunction with the Household Expenditure Measure (HEM). The Australian Prudential Regulation Authority (APRA) closely monitors DTI ratios in bank lending portfolios.
• While there's no official 'magic number', a DTI ratio above 40% is often considered high by lenders and could make it difficult to get approved for new credit. A DTI below 30% is generally seen as strong.
• When applying for a mortgage, lenders will assess your credit card limits, not just your current balance. A $20,000 credit card limit can be assessed as a monthly repayment of $600 (3% of the limit), even if you pay it off in full each month. This can significantly impact your DTI.

• Before applying for a major loan, calculate your DTI to see where you stand. If it's high, focus on paying down debts or reducing credit card limits to improve your ratio.
• Increase your income. This is the other side of the DTI equation. A side hustle or a salary increase can directly improve your DTI ratio, even if your debts remain the same.
• Avoid taking on new debt, like a car loan or personal loan, in the months leading up to a mortgage application. Every new monthly payment will increase your DTI and reduce your borrowing capacity.