An investor with assessed gross income of $90,000 (including expected rent) and a $200,000 mortgage on her own home wants to buy a rental. Under the Reserve Bank's DTI settings, what is the most she can borrow for the rental before the loan is high-DTI?
Correct Answer
C) $430,000, being seven times income less her existing mortgage.
For investment lending the Reserve Bank's DTI threshold is 7. The borrowing ceiling before a loan is high-DTI is 7 × $90,000 = $630,000, less existing debt of $200,000, which gives $430,000. Borrowing above that is not banned but must fit within the bank's 20% allowance for high-DTI investor loans.
Why This Is the Correct Answer
Seven times $90,000 is $630,000, and deducting the $200,000 mortgage leaves $430,000.
Why the Other Options Are Wrong
Option A: $340,000, being six times income less her existing mortgage.
A DTI threshold of 6 applies to owner-occupier lending; investor lending uses a threshold of 7.
Option B: $630,000, being seven times her income with her home loan left out.
All existing residential debt, including the mortgage on her own home, is counted in the DTI calculation.
Option D: Nothing, because investors cannot be lent to above a DTI of seven.
The limit is a speed limit: banks may make up to 20% of new investor lending to borrowers above a DTI of 7.
Background Knowledge for Finance
Source: https://www.rbnz.govt.nz/education/explainers/dti
Exam Tip for Finance
Identify the purpose of the new loan first: investment uses 7, owner-occupied uses 6.
Common Mistakes to Avoid on Finance Questions
- •Using the owner-occupier threshold of 6 for an investment purchase.
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