Home loan borrowing power calculator

Your borrowing power is the amount of money a lender might lend you based on your financial situation, including your current income, credit score, assets and liabilities. Borrowing power is generally a more helpful guide than deposit size for prospective homebuyers working out how much they can afford to borrow.

For example, you could have a $1 million deposit saved up, but that doesn’t mean you could afford to meet the interest repayments on a multi-million-dollar home loan. Borrowing power, however, looks at the amount you could potentially borrow, and the property values you could potentially afford based on how much you could contribute to home loan repayments.

Borrowing power is generally calculated by lenders using your regular income and living expenses, plus a few other factors. These can include, but aren’t limited to:

• Whether you’re buying with another person, and how much they earn
• The number of dependants you have
• Any current outstanding debt or financial commitments (such as a credit cards, car loans or personal loans)
• The size of any regular loan repayments you’re currently making
• Your credit score and credit history
• Your employment status and history
• The interest rate and loan term you’d be looking to secure.

One of our expert mortgage brokers can talk you through everything a lender will look at when assessing your borrowing power.

Several different factors can influence the amount of money a lender is willing to lend you. However, the impact they have will depend on your financial habits and circumstances, such as:

• Your income. Your borrowing power is based on your income after all your regular expenses have been accounted for. Even if you have a relatively high income, a lender might not give you a new home loan if you’re not saving any money. On the other hand, if you earn a more modest income, but spend very little of it, your borrowing capacity could be higher than you think.
• Your existing debt and assets. Existing debt isn’t always a devastating blow to your home buying ability. It can sometimes strengthen your application if you have a proven track record of meeting your repayments on time, and these don’t impact your regular income too much. However, existing debts can negatively affect your borrowing power by reducing the amount of income you have available to put towards home loan repayments.
• Your saved deposit amount. As your deposit doesn’t have anything to do with your regular income and expenses, it’s size usually won’t have much of an impact on your borrowing power. The size of your deposit could affect your maximum feasible purchase price, and will also have an impact on whether you have to pay lenders mortgage insurance (LMI).

Many things can affect your borrowing power, so it may be worth going over some of the lesser-known factors that could have an impact on your borrowing power. These include:

• Desired loan purpose. Whether you’re an owner-occupier, an investor looking to refinance an existing home loan or looking to buy your next property, or a first home buyer, your borrowing power might be affected by your buying circumstances. If an investment property will generate rental income, that could increase your borrowing power if you decide to refinance or take out another home loan. Furthermore, the additional costs that might come with an investment home loan could also affect your borrowing power.
• Desired loan type. It generally won’t matter if you’re applying for a fixed rate, variable rate, construction, line of credit or split rate home loan. However, your borrowing power will be affected by the interest rate of the loan you’re applying for. So, if one loan type has a higher rate than another, your borrowing power could decrease for the higher-interest loan and increase for a lower-rate loan. Additionally, borrowers wanting to make interest-only repayments will typically see their borrowing power reduced. This is due to lenders’ borrowing power algorithms factoring in the interest-only period when a borrower’s loan principal sees no reduction.
• Your choice of lender. Different lenders in Australia may have different lending criteria across their range of home loan options, so your borrowing power can fluctuate depending on the interest rates and calculations of different lenders. You’ll generally want to compare different lenders, comparison rates and home loan options to make sure you’re getting the best value possible.

You can generally increase your borrowing power by considering the factors that influence it and working on these individually. While some of these changes may not make an immediate difference, the impact on your borrowing power may prove greater than the sum of its parts over time.

Some steps you could take to increase your borrowing power include:

• Reducing your living expenses. It’s been said many times over but consider cutting down on everyday treats and unnecessary spending. If you struggle with drawing up or sticking to a budget, you may want to try using a budget planner. Reducing your credit card limits may help to reduce your spending.
• Pay down existing debt. While having debt isn’t always an immediate dealbreaker when it comes to getting a home loan, it’s unlikely to increase your borrowing power. Whether it’s credit card debt or a car loan, the presence of existing debt can have an impact on your borrowing power because it directly reduces the amount of money you have available to put towards home loan repayments. Consider paying down, consolidating or restructuring your debts before applying for a home loan.
• Look at cheaper properties. If you can’t find a way to increase your borrowing power, why not decrease the amount of borrowing power you’ll need to buy a house by downsizing your property expectations? Looking at smaller homes could make your borrowing power work harder in your favour.

Your interest rate will influence the overall size of your ongoing mortgage repayments, making it an important variable when calculating your home loan borrowing power.

However, there is a second, indirect way a home loan’s interest rate can affect your borrowing power, and even your overall eligibility for any home loan.

The Australian Prudential Regulation Authority (APRA) expects lenders to factor in something called a ‘serviceability buffer’ when assessing every home loan application they receive. The current minimum interest rate serviceability buffer is three percentage points, which means lenders risk breaching their compliance requirements if they approve a home loan that the applicant can’t afford to repay a rate increase of three percentage points.¹

This measure is in place to protect borrowers against significant interest rate hikes, but it can cause a lot of headaches if you’re unaware of it and trying to get approval for a home loan.

So, keep that extra 3% in mind when you’re thinking about borrowing power. A certain home loan product may seem within your means based on your desired loan amount, but what if its advertised rate was 3% higher? Our home loan comparison tool will take this buffer into account when calculating your borrowing power. Please note that while we can provide you with an approximate idea of how much you may be able to afford to borrow, it should only be taken as a guide rather than a formal pre-qualification, as our borrowing power calculations don’t reflect the individual and varying serviceability standards of each lender.