Debt-to-Income Ratio in Australia: What Lenders and You Should Care About

The formula: DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100. If you earn $7,500 per month gross and pay $2,500 across your mortgage, HECS-HELP repayments, and car loan, your DTI is 33%. APRA (the banking regulator) requires lenders to assess serviceability at interest rates well above the current rate, typically 3% above.

For Australian mortgages, lenders typically prefer a DTI ratio below 6x annual gross income as a total debt-to-income measure. A household earning $150,000 with an $800,000 mortgage has a ratio of 5.3x — within acceptable range. Above 6-7x, borrowing becomes restricted and lenders may decline applications.

HECS-HELP debt affects your borrowing capacity. While HECS repayments are income-contingent (only starting when you earn above $54,435), lenders factor the repayment amount into their serviceability calculations. A $30,000 HECS debt can reduce your borrowing capacity by $50,000-$100,000 depending on the lender.

A high DTI means less income is available to invest and build wealth. Every dollar going toward debt repayments is a dollar not compounding in your super or ETF portfolio. Reducing DTI by paying down non-deductible debt (credit cards, car loans, personal loans) before tax-deductible debt (investment loans) is generally the optimal approach.

Tracking DTI alongside net worth and cash flow gives you a three-dimensional view of your financial health — essential for anyone planning to buy property, apply for a loan, or pursue FIRE in Australia.