What is debt-to-income ratio (DTI)?

DTI = total debt (new loan + existing loans + credit-card limits + HECS) ÷ gross household income. APRA's 2021 guidance flagged DTI above 6.0× as 'high-risk' and now requires lenders to report any new loans above that threshold. Most major banks cap individual new loans at 6.0-6.5× DTI as policy.

Why it matters: even if your monthly cashflow services the loan at the APRA buffer rate, DTI flags the *aggregate* leverage. A household DTI of 8× means you're leveraged 8 years of gross income against assets. Sensitivity to rate moves + employment loss is non-linear at high DTI.

Practical consequence: the same income can produce different maximum loans depending on whether the borrower has other debts. Couple on $150K: no other debt → potential $900K-$1M loan; with a $30K car loan + $20K credit card + $40K HECS → potential $750K-$850K loan. The DTI cap binds before serviceability.

Tactical levers: pay down credit-card limits before applying (banks count the LIMIT not the BALANCE), refinance car loans into shorter terms, deferred HECS doesn't always bind same as active debt, household income can include rental income from existing IPs at a 60-80% credit. Brokers know each lender's nuance.