Understanding your financial position is essential when planning to buy a property. One of the most important indicators of financial health is your debt-to-income (DTI) ratio—a metric used by lenders to evaluate your ability to manage additional debt, such as a home loan.
This guide explains what the DTI ratio is, why it matters, and how to use a mortgage calculator to evaluate it. Whether you’re a first-home buyer or planning your next purchase, this approach can help you make confident, data-driven decisions.
What Is the Debt-to-Income (DTI) Ratio?
Your DTI ratio compares your total monthly debt repayments to your gross monthly income (before tax). It’s expressed as a percentage and used by banks and lenders to assess whether you can comfortably afford a mortgage.
There are two main types:
1. Front-End DTI
This ratio looks specifically at housing-related expenses—such as mortgage repayments, council rates, and insurance—divided by your gross monthly income.
2. Back-End DTI
This broader measure includes all monthly debt obligations, such as:
- Mortgage or rent
- Credit card repayments
- Car loans
- Personal loans
- Student loans
Most lenders in Australia prefer a back-end DTI of below 36%, with the front-end ratio ideally sitting under 28%, though criteria can vary between lenders.
How to Calculate Your DTI Ratio with a Mortgage Calculator
A mortgage calculator is a free online tool that can help you estimate your repayments and calculate your DTI ratio by entering basic income and expense details. Here’s a step-by-step process:
Step 1: Add Your Monthly Debt Obligations
Start by listing your current monthly debt repayments:
- Existing mortgage or rent
- Credit card minimum repayments
- Car finance
- Personal or student loans
- Any other recurring debts
If you’re calculating your front-end DTI, include only housing costs. For your back-end DTI, include all debts.
Step 2: Enter Your Gross Monthly Income
Your gross monthly income includes all earnings before tax, such as:
- Salary or wages
- Overtime, commissions, or bonuses
- Rental income
- Any other consistent sources of income
Ensure you use gross (pre-tax) figures, not net income.
Step 3: Review the Calculated DTI Ratio
Most mortgage calculators will display your DTI ratio automatically once you enter both figures. The result will be expressed as a percentage.
Example:
- Total monthly debts: $2,200
- Gross monthly income: $7,000
DTI = 2,200 ÷ 7,000 = 31.4%
This means 31.4% of your gross monthly income is allocated to repaying debt.
Step 4: Compare to Lending Guidelines
Lenders generally prefer borrowers with lower DTI ratios, as they pose less risk. If your ratio is higher than recommended:
- Consider reducing existing debts
- Reassess the size of the loan you’re applying for
- Increase your income if possible
Use this insight to strengthen your application or delay your purchase until your DTI improves.
Using Mortgage Calculators to Explore Scenarios
One of the biggest advantages of mortgage calculators is the ability to model different outcomes. You can:
- Adjust the loan amount to see how it affects your DTI
- Change the interest rate or term to view different repayment scenarios
- Include potential new debts to assess how they would impact your eligibility
This flexibility allows you to explore realistic property budgets and determine how much you can borrow responsibly—not just how much you’re allowed to borrow.
Why Your DTI Ratio Matters to Lenders
Lenders assess DTI to determine your borrowing risk. A high ratio may indicate you’re overextended, which could reduce your chances of loan approval or limit the amount you can borrow. A lower DTI generally means:
- You’re managing your debt well
- You have capacity to take on a mortgage
- You’re more likely to secure favourable interest rates
Understanding and managing your DTI puts you in a stronger position to negotiate and secure a competitive home loan.
Final Thoughts
Your debt-to-income ratio is a key part of your financial health, especially when applying for a mortgage. Using a mortgage calculator to evaluate your DTI gives you clarity, helps you plan ahead, and ensures you don’t take on more debt than you can manage.
By taking the time to calculate and monitor your DTI—both front-end and back-end—you can confidently assess your readiness to buy a property and approach lenders with a stronger application.