Debt-to-Income Ratio (DTI): Why Banks Use It
Reviewed 27 August 2026 · 4–6 min read
At a glance: Debt-to-Income ratio (DTI) compares your total debts to your annual income. Lenders may use it as one part of a broader assessment, alongside income, expenses, deposit, property and serviceability.
What is DTI?
Your DTI is calculated by dividing the total size of your loans by your gross (before-tax) annual income.
Formula: DTI = Total Debts ÷ Gross Annual Income
Example: If you earn $100,000 and borrow $500,000, your DTI is 5.0.
Why Do Banks Use DTI?
Lenders use DTI to understand how large a proposed debt is relative to income. A higher result can reduce options, but there is no universal personal DTI cap that guarantees approval or decline.
- Different lenders may apply different DTI limits or additional checks.
- Income type, deposit, expenses, loan purpose and property can change an assessment.
- A lower DTI does not replace the lender’s full serviceability and credit assessment.
APRA monitors higher-DTI lending at a portfolio level, while individual lenders set and update their own credit policies.
How Does DTI Affect Borrowing Power?
DTI can be one constraint on how much you can borrow. For example, a $900,000 loan against a $150,000 household income has a DTI of 6.0. Whether that loan is available still depends on the lender’s full assessment.
DTI Calculator
Your result updates as you type.
How to Lower Your DTI
- Pay down existing debts (credit cards, personal loans).
- Boost your income where possible.
- Borrow less — choose a smaller property or reduce loan size.
- Add a co-borrower to increase total household income.
Check Your Borrowing Power
Use our full Borrowing Power Calculator to see how DTI, income, expenses, and buffers combine to shape your maximum loan size.
General information only — not financial advice. This page does not apply a lender-specific DTI policy. Individual lender thresholds and credit policies vary and can change.