Debt to income ratio

What it means and why lenders care

When you apply for a mortgage or any significant loan in NZ, lenders don't just look at your income. They look at how much debt you're already carrying relative to that income. That's your debt-to-income ratio, and it matters more than most borrowers realise.

What it is

Debt-to-income ratio (DTI) is calculated by dividing your total debt by your gross annual income.

For example: if you have a $500,000 mortgage and earn $100,000 a year, your DTI is 5. If you also have a $20,000 car loan, your DTI is 5.2.

Why lenders care

The Reserve Bank of New Zealand introduced formal DTI restrictions in 2024. Most banks are now limited in how many loans they can issue above a DTI of 6 for owner-occupiers and 7 for investors.

In practice, this means that even if you can service a loan on paper, a high DTI can stop you from getting approved — or limit how much you can borrow. Lenders see high DTI as a signal that you're stretched, and that a change in income or interest rates could tip you into difficulty.

What's a reasonable DTI?

Below 5 is comfortable for most lenders. Between 5 and 6 is manageable but gets more scrutiny. Above 6 and your options narrow significantly under current RBNZ rules.

If you're planning to buy a home or refinance, your DTI is worth calculating before you approach a bank. Finding out at the application stage that your ratio is too high — and that you need to pay down a car loan or personal debt first — is better than finding out after you've found the property.

How to use it with SortMe

Head to the dashboard in your Net Worth feature. Add up your total debt balances, divide by your gross annual income, and you have your DTI. If it's above 5, it's worth knowing that before your next lending conversation.

When to get advice

If your DTI is above 6 and you're planning to buy or refinance, a mortgage adviser can help you understand what options are still available — and what to pay down first to improve your position. Naked Finance works with SortMe users navigating exactly this.

These articles are financial education, not personalised financial advice. For advice specific to your situation, talk to a licensed financial adviser.