A couple plan to live in the home they buy. Their combined gross income is $100,000 and they have a $50,000 car loan. Using the Reserve Bank's debt-to-income (DTI) threshold for owner-occupiers, above what new borrowing would they be treated as high-DTI?
Correct Answer
B) Above $550,000, being six times income less their existing debt.
Under the DTI restrictions in effect since 1 July 2024, owner-occupier borrowing over 6 times annual gross income, minus existing debt, is high-DTI. Here 6 × $100,000 = $600,000, less the $50,000 car loan, gives $550,000. Banks may still lend above that within their 20% speed limit.
Why This Is the Correct Answer
Six times $100,000 is $600,000, and deducting the $50,000 debt leaves $550,000.
Why the Other Options Are Wrong
Option A: Above $600,000, being six times their income with existing debt ignored.
Existing debt counts in the DTI calculation, so the car loan must be deducted from six times income.
Option C: Above $650,000, being seven times income less their existing debt.
The threshold of 7 applies to investor lending; owner-occupiers use a DTI threshold of 6.
Option D: Above $500,000, being five times their gross income.
The Reserve Bank's owner-occupier DTI threshold is 6, not 5, and existing debt is also taken into account.
Background Knowledge for Finance
Source: https://www.rbnz.govt.nz/education/explainers/dti
Exam Tip for Finance
DTI maths: threshold × gross income − existing debt; use 6 for owner-occupiers and 7 for investors.
Common Mistakes to Avoid on Finance Questions
- •Forgetting to subtract existing debts such as car loans, credit card limits or overdrafts.
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When assessing a mortgage application, which factor is typically given the highest priority by New Zealand lenders?
James has been contributing to KiwiSaver for 4 years and wants to withdraw funds for his first home. His KiwiSaver balance is $45,000, but $15,000 consists of government contributions and employer matching. What is the maximum he can withdraw for his house deposit?
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