Understand the number behind your borrowing—and what it could mean for your next home.
You have been saving for a deposit, browsing properties and wondering how much you could borrow. Then a mortgage conversation introduces another number: your debt-to-income ratio.
In New Zealand, DTI compares your total debt with your annual income before tax. It helps show the size of your borrowing relative to your earnings. Understanding it can help you prepare for a mortgage conversation—but your deposit, expenses and ability to manage repayments also matter.
THE KEY IDEA Your DTI is a useful starting point.
It isn’t your whole financial picture.
What does debt-to-income ratio mean?
Your DTI expresses total debt as a multiple of annual gross income. “Gross” means before tax and deductions. On a joint application, the calculation considers the relevant borrowers’ combined income and debts.
For example, $650,000 of total debt divided by $130,000 of annual gross income gives a DTI of 5. Your debt equals five times your annual income.
This does not mean you spend five times your income on repayments every year, or that the loan will take five years to repay. Tax, living costs, interest and your repayment schedule are separate considerations
Why some online explanations look different
Some overseas websites describe DTI as monthly debt repayments divided by monthly income, expressed as a percentage. This guide uses the New Zealand mortgage measure: total debt divided by annual gross income. Check a calculator’s formula and country before comparing its result with NZ lending thresholds.
How to calculate your DTI
Start with a simple estimate, then ask your mortgage adviser to confirm which figures the lender will accept.
Step 1. Add your annual gross income
Suppose one applicant earns $75,000 and the other earns $55,000 before tax. Together, their annual gross income is $130,000.
Step 2. Add the mortgage and other debt
If the applicants want a $620,000 mortgage and have $30,000 of other included debt, their total borrowing would be $650,000.
Step 3. Divide debt by income
$650,000 ÷ $130,000 = 5.0. That is their illustrative DTI.
The calculation helps compare scenarios. It cannot tell you whether repayments fit your household budget or whether a lender will approve the application.
Which debts and income count?
Getting the inputs right matters as much as using the correct formula. Give your adviser a complete picture of what you earn and what you owe.
Debts to disclose
- Existing mortgages and the proposed home loan.
- Personal loans and vehicle finance.
- Student loans, credit cards and overdrafts.
- Other financial commitments and borrowing arrangements.
BNZ’s guidance includes these common forms of personal debt. Specific exclusions can apply, so let the lender determine how to treat unusual arrangements.
Credit limits matter. The Reserve Bank’s examples use the card limit rather than the outstanding balance. A card you rarely use may therefore still affect the calculation.
Income to discuss with your adviser
Salary is not the only possible income source. Self-employment earnings, rent, investment returns and government benefits may also be relevant. Confirm what the lender will recognize in your circumstances.
If your income varies, avoid building your property budget around your best month. Bring evidence of your earnings and explain recent changes so your estimate has a sound basis.
What are the current DTI rules?
These “speed limits” apply to banks’ lending activity. They are not a promise that an individual can borrow six or seven times their income. Being above a threshold does not automatically rule out a loan; being below one does not guarantee approval.
Certain lending can qualify for exemptions, including qualifying refinancing without increased borrowing, bridging finance and eligible new-build lending. Conditions apply. The restrictions apply to banks rather than non-bank lenders.
An exemption is something to check with your adviser, rather than assume from a property advertisement or a general description of your plans.
How can DTI affect your borrowing plans?
Consider an owner-occupier household earning $140,000 annually, with $40,000 of other included debt. At a DTI of 6, total debt would be $840,000. Subtracting existing debt leaves $800,000 for a proposed mortgage.
This is a mathematical threshold calculation, not an approved borrowing amount or a recommended budget. Compare three possible mortgage sizes:
| Mortgage | Other debt | Total debt | DTI |
|---|---|---|---|
| $650,000 | $40,000 | $690,000 | 4.93 |
| $725,000 | $40,000 | $765,000 | 5.46 |
| $800,000 | $40,000 | $840,000 | 6.00 |
With income unchanged, a larger mortgage increases DTI. Ask what repayments would look like at each amount, how much room would remain for saving, and whether the higher purchase price would still feel manageable if circumstances changed.
DTI, LVR and affordability
These measures answer different questions. DTI compares debt with income. Loan-to-value ratio (LVR) compares the mortgage with the property value. Affordability looks at how repayments fit your finances.
A larger deposit does not answer every question
Suppose a property costs $900,000 and you contribute $180,000, leaving a $720,000 mortgage. Your LVR is 80%. If annual gross income is $120,000 and there is no other included debt, your DTI is 6. Both figures describe the same purchase from different angles.
The Reserve Bank describes DTI and LVR restrictions as complementary tools addressing different aspects of lending risk.
Your everyday budget still matters
Two households can have the same income and DTI but different expenses. Childcare, transport, insurance and other commitments can leave very different amounts available for repayments.
Your comfort level matters too. A budget should leave room for the life you intend to lead after moving in. Westpac’s guidance asks for income, expenses, deposit information and liabilities as part of assessing a loan.
Five ways to get prepared
1. Review existing debt
List balances, limits and repayments. Identify what you expect to repay before buying and what will remain. Paying down debt lowers DTI if other inputs stay the same. But using deposit savings to repay debt can change the mortgage you need. Compare the complete purchase position before moving money.
2. Review unused credit limits
Discuss whether unnecessary facilities should be reduced or closed. Consider both your application and access to emergency funds. The aim is suitable borrowing arrangements, rather than rushed changes just to improve a number.
3. Compare different purchase budgets
With $130,000 in annual income, reducing total debt from $650,000 to $600,000 changes DTI from 5.0 to about 4.62. Consider what a lower price range means for location, property size and ongoing costs alongside the repayment difference.
4. Prepare clear documents
Gather income evidence, loan statements, credit-card details, deposit records and a realistic expense summary. Self-employed applicants should have relevant financial statements or tax information ready.
5. Keep your adviser up to date
If you take on vehicle finance, increase a credit limit or change the intended mortgage, tell your adviser. A calculation based on old information may no longer describe the purchase you are planning.
Does debt consolidation reduce DTI?
Combining loans does not automatically reduce total debt. A $600,000 mortgage plus $25,000 of other debt becomes $625,000 if combined into one mortgage, before any added fees. With income unchanged, the basic DTI is unchanged too.
Different rates and terms may change the monthly payment, but a smaller payment is not the same as a smaller debt. Compare the overall cost, repayment period and security arrangements before deciding whether consolidation suits you.
Your questions, answered.
1. What is a good DTI ratio in New Zealand?
There is no single ratio that guarantees a suitable or approved mortgage. A lower DTI means less debt relative to the same income, but repayments, expenses, your deposit and future plans still matter.
2. Is DTI calculated before or after tax?
The NZ mortgage calculation uses annual gross income: income before tax. Your take-home pay remains important when working out your household budget.
3. Does DTI include the mortgage I want to apply for?
Yes. Include the proposed mortgage alongside relevant existing debt. Otherwise, the estimate describes your finances before the purchase rather than the borrowing position being assessed.
4. Can I get a mortgage with a DTI above 6?
It may be possible for an owner-occupier because banks have an allowance for some high-DTI lending. Availability and the rest of the assessment matter. It is not an entitlement to approval.
5. Will a lower interest rate reduce my DTI?
A lower rate alone does not change the formula. If debt and income stay the same, DTI stays the same. Repayments may change, which is a separate affordability consideration.
6. Does a larger deposit improve DTI?
It can, if it reduces the amount you need to borrow. If you use the larger deposit to buy a more expensive property while keeping the mortgage unchanged, your DTI may stay the same.
7. Should I calculate DTI before house hunting?
An early estimate helps you compare budgets and prepare questions. Follow it with a full borrowing assessment before relying on a price range.
YOUR NEXT CHAPTER
put your numbers into perspective.
Bring your income details, existing debts, deposit amount and property budget. We can help you understand your position and discuss lending options that may suit your circumstances.
