BORROWING CAPACITY · Australian mortgage planning · Information checked 30 October 2026
A lender says your deposit looks healthy, but your total debts need a closer look. Another calculator suggests you can borrow more than you expected. Then you read that Australians cannot borrow more than six times their income. Which number should you trust?
Your debt-to-income ratio helps explain part of the picture. It compares total debt with annual income, rather than comparing the new mortgage alone with your salary. Australia's high-DTI lending limits make this a useful number to understand, especially if you already own a property or carry several credit commitments.
What is a debt-to-income ratio?
At its simplest, the ratio is total debt divided by annual gross income. Gross income means income before tax, although the lender needs to determine which income is acceptable and verified for its assessment. The formal regulatory definition and the lender's affordability method are not interchangeable.
Illustrative calculation
If the relevant total debt is $900,000 and the verified annual gross income is $180,000, the debt-to-income ratio is 5.0. The calculation is $900,000 ÷ $180,000. This arithmetic is a planning illustration, not a borrowing approval.
A common mistake is dividing only the proposed new loan by income. For someone with an existing investment mortgage, that leaves a major commitment out of the picture. Credit limits and other liabilities may also matter under the applicable definition. Ask which debts and limits the lender has included, rather than assuming the amount owing on your newest statement is the only relevant figure.
DTI, LVR and serviceability answer different questions
| Measure | Question it helps answer | What it does not establish |
|---|---|---|
| Debt-to-income ratio | How large is the debt relative to annual income? | Whether monthly repayments fit your expenses |
| Loan-to-value ratio, or LVR | How large is the secured loan relative to the property's assessed value? | Whether you have sufficient income |
| Serviceability assessment | Can assessed income cover commitments and expenses under lender assumptions? | Whether the purchase fits every personal goal |
A large deposit can improve LVR while leaving your debt-to-income ratio high. Strong income can improve the ratio while childcare, other repayments or variable earnings constrain serviceability. Treating one measure as a substitute for the others is a quick way to overestimate a purchase budget.
How Australia's high debt-to-income lending limits work
From 1 February 2026, APRA's framework allows banks to fund up to 20% of new owner-occupied lending and up to 20% of new investment lending at a DTI of six or more. The categories are measured separately. The policy applies to authorised deposit-taking institutions conducting residential mortgage lending in Australia. Read the APRA announcement.
This is a limit on a lender's relevant lending mix, not an instruction to approve everyone below six or reject everyone above it. A bank can apply its own tighter policies. Borrowers also need to satisfy the other checks attached to their application.
There are specified exemptions for qualifying new-dwelling construction, newly erected dwellings and bridging finance, with reporting arrangements that affect their treatment. An exemption does not remove credit assessment or guarantee approval. Your lender needs to confirm whether the particular transaction qualifies. APRA sets out the detail in its implementation document.
Does this mean non-bank lending is an automatic solution?
No. Check which institution is providing the loan and what rules and policies apply. A lender outside this particular bank limit can still decline an application or offer terms that do not suit your needs. Compare costs, features and suitability before treating a different lender category as a shortcut.
A worked example: an existing mortgage changes the result
Consider a household with annual income of $200,000, an existing mortgage of $450,000 and a proposed second loan of $650,000. Ignoring other commitments for this simplified example, combined debt would be $1.1 million and DTI would be 5.5.
If the proposed loan rose to $800,000, combined debt would become $1.25 million and DTI would be 6.25. Looking only at the new $800,000 loan would suggest a ratio of four, which misses the existing debt entirely.
Existing debt
$450,000
$450,000
Proposed debt
$800,000
$800,000
Combined DTI
$1,250,000 ÷ $200,000 = 6.25
$1,250,000 ÷ $200,000 = 6.25
These examples do not calculate serviceability, taxes, rent, credit limits, purchase costs or loan eligibility. Their purpose is to show why an existing mortgage belongs in the conversation. For a real investment purchase, the lender also needs to decide how rental income and property expenses will be treated.
Why your personal repayment budget still matters
Two households can have the same debt-to-income ratio and very different financial lives. One may have predictable salaries and low fixed expenses. Another may have dependants, irregular income and substantial transport costs. The ratio does not describe those differences.
Start with the repayment you are comfortable making and leave room for foreseeable changes. Consider parental leave, reduced work hours, school costs and property maintenance. A lender's maximum is a credit decision; your preferred borrowing level can be lower.
A loan's structure matters too. An interest-only period, a long remaining term or a fixed rate can change current repayments without reducing the debt itself. Compare what happens later, including when an introductory arrangement ends. Moneysmart explains the broader factors in choosing a home loan.
Seven practical checks before applying
- List every liability. Include current mortgages, personal finance and revolving credit facilities. Give the broker current limits as well as balances.
- Separate reliable income from assumptions. Identify base pay, variable earnings, rental income and anything earned overseas. Ask what evidence is required.
- Work out the purchase contribution. Allow separately for the deposit, duty where payable, legal costs and cash reserves.
- Model the proposed total debt. Include any equity release or other borrowing used to fund the purchase, not just the loan against the new property.
- Request a serviceability assessment. A rough debt-to-income ratio alone cannot establish an affordable loan size.
- Check the transaction category. Ask how the lender classifies the property and whether any regulatory exemption actually applies.
- Set a repayment ceiling. Compare the lender's result with your own budget and future plans before choosing a price range.
Would paying down another debt help?
It can, but compare the whole transaction. Using savings to clear a personal loan reduces one liability while also shrinking the cash available for your deposit. If you then borrow more for the property, part of the debt reduction may be offset. Cash-flow improvements and deposit changes need to be modelled together.
Do not close facilities or make large transfers solely to improve a ratio without checking the effect on the application. Give accurate information about every commitment. If HELP debt is part of the discussion, our guide to paying off HECS versus saving a house deposit explains the separate deposit and repayment trade-offs.
Keep the comparison consistent
When comparing lender estimates, ask each to use the same property price, deposit, applicants and commitments. Otherwise, an apparently higher borrowing figure may simply reflect a different starting point. Record the assumptions beside each result and distinguish an informal estimate from conditional or formal approval.
If your circumstances change before settlement, tell your broker promptly. A new job, a lower deposit, a changed credit limit or another purchase can alter the assessment. Keeping the application current is more useful than relying on a ratio calculated several months earlier.
Debt-to-income ratio FAQs
Can I borrow more than six times my income?
It may be possible, but it is not guaranteed. The bank's relevant lending limits, its own policies and your full assessment all matter. A ratio above six does not create an entitlement to an exception.
Does a debt-to-income ratio below six guarantee approval?
No. The lender still assesses acceptable income, expenses, repayment capacity, credit history, deposit and property security. DTI is only one part of the decision.
Will a larger deposit reduce my debt-to-income ratio?
It can if it reduces the amount you need to borrow and other factors remain unchanged. It can also improve LVR. A larger deposit funded by another loan needs a different calculation because that extra debt still exists.
Does rental income count when buying an investment property?
Lenders may accept rental income subject to evidence and their assessment rules. Do not assume the entire advertised or expected rent will be accepted. Property expenses and existing commitments also need to be considered.
Are construction and bridging loans automatically approved?
No. Some qualifying transactions receive different treatment under the DTI framework, but they still require a lender assessment. Confirm the actual classification and terms before making a purchase commitment.
Is DTI the same as the percentage of income spent on repayments?
No. DTI compares the amount of debt with annual income. A repayment-to-income measure compares payments over a period with income over that period. They describe different aspects of borrowing.
General information only. Calculations are illustrative and are not lending offers or personal financial advice. Policy information was checked on 30 October 2026 and may change. Approval and product suitability depend on the lender and your circumstances.