Demystifying debt-to-income ratios
In the maze of financial jargon out there, one term that has been buzzing around lately is DTIs, or Debt to Income Ratios.
From economic pundits to lending institutions, everyone seems to be talking about how DTIs will shape borrowing and lending heading forward when some highly anticipated changes are made.
But what exactly are DTIs, and should you be concerned about them?
Let's break it down.
First, let's break it down
Essentially, DTIs represent the amount of money you can borrow relative to your income.
This includes all income sources and existing debts, such as personal loans, credit cards, and primarily, home loans. For many individuals, home loans constitute the bulk of their debt portfolio.
It's likely that any restrictions on debt-to-income will be around seven times for owner occupiers and six times for investors.
That means for every $100K you earn, you can borrow $600K - $700K of total debt.
Will it affect me?
Contrary to some fears, the answer might surprise you.
We looked at some real-life client scenarios and discovered that as expected, DTI's are not likely to make a massive difference to borrowing ability.
The current servicing rate calculations utilized by banks are already approximately 20 to 25% lower than what DTIs would permit.
Policy could change, but we've got your back
Lending policies are subject to change.
The changing interest rate environment (likely moving down over time) and evolving lending appetite and policy could influence the impact of DTIs in the future.
While it's plausible that lenders may adjust their policies and conduct further assessments once DTIs are formally introduced, for the present moment, there's little cause for alarm.
We've got your back
While DTIs may have generated some buzz in financial circles, their actual impact on borrowing remains pretty limited for now.
If you'd like to know about how the changing lending landscape might affect you, and make a plan for how to meet your goals - get in touch with us.
We've always got the most up-to-date info and strategies to help you absolutely smash it in the lending space!