Two ratios, two different questions
Almost every mortgage decision comes down to a pair of numbers, and they are not measuring the same thing.
| Ratio | What it asks | What moves it |
|---|---|---|
| LTV loan ÷ property value | If this goes wrong, is the property worth enough to cover the loan? | Your deposit, and the lender’s valuation |
| DTI debt payments ÷ income | Can you actually keep paying every month? | Your income and every other debt you carry |
A large deposit does not cancel a weak income, and a strong income does not remove the need for a deposit. They are tested separately, and an application usually fails on whichever is worse.
Front-end and back-end DTI
Front-end counts housing costs alone against income. Back-end counts every monthly debt payment, housing included. The back-end figure is the one lenders decide on, and the one every country limit below refers to.
Income 6,000 · housing 1,500 · other debts 600
Front-end = 1,500 ÷ 6,000 = 25.0%
Back-end = 2,100 ÷ 6,000 = 35.0%
A car loan that ends in six months still counts today. Clearing small balances before applying often moves the back-end figure more than raising the deposit does.
The limits differ by country
The arithmetic is the same everywhere. What changes is the line you have to stay under, and the name it goes by.
| Country | Reference limit | Notes |
|---|---|---|
| United States | Back-end 43% | The common Qualified Mortgage threshold. Some lending sits above it where there are compensating factors such as reserves or a low LTV. |
| Canada | GDS 39% / TDS 44% | GDS is the front-end equivalent, TDS the back-end, on insured mortgages. Both are tested at a qualifying rate above the contract rate. |
| United Kingdom | 4.5× loan-to-income | A cap on how much of a lender’s book may exceed 4.5 times income, not a hard bar on you. Your case is judged on an affordability assessment. |
| Australia | +3 percentage points | APRA guidance: assess the borrower at the contract rate plus a serviceability buffer, rather than at a fixed DTI line. |
| Korea | DSR 40% banks / 50% non-banks | DSR counts the principal of every loan, not just the interest, which makes it stricter than DTI on the same borrower. |
The Korean row is worth a second look, because DSR is not simply a renamed DTI. Under DTI, non-housing debt contributes only its interest. Under DSR the principal counts too, so the same borrower scores materially worse. Comparing a DTI figure against a DSR limit will mislead you.
Why the lender’s number is worse than yours
Several markets deliberately test you at a rate higher than the one you will sign — a stress test, a qualifying rate, or a serviceability buffer. The payment used in the ratio is therefore larger than the payment you would actually make. Lenders also pull your credit file and count debts you might not have listed: card minimums, buy-now-pay-later balances, guarantor obligations.
Treat the figure here as your own baseline. It tells you which side of the line you are on and what would move you, not what any particular lender will conclude.
Common questions
- What is the difference between front-end and back-end DTI?
- Front-end counts only housing costs against your income. Back-end counts every monthly debt payment, housing included. Lenders usually decide on the back-end figure, and it is the one that country limits refer to.
- What DTI do lenders accept?
- It varies by country and product. In the US, 43% back-end is the common Qualified Mortgage threshold, with some room above it where there are compensating factors. Canada uses GDS 39% and TDS 44% on insured mortgages. The UK caps how much of a lender book can sit above 4.5 times income and assesses each case on affordability.
- Does a low LTV make up for a high DTI?
- Sometimes, but they answer different questions. LTV is about the collateral if you stop paying; DTI is about whether you can keep paying. A large deposit can help a marginal case, but it does not remove an income test.
- Why is the figure my lender quoted higher than this?
- Most markets assess you at a rate above the one you sign - a stress test or serviceability buffer. Australia adds 3 percentage points under APRA guidance, and the UK and Canada apply their own versions. Lenders also count debts you may not have entered here, such as credit card minimums and student loans.