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:
You can generally increase your borrowing power by considering the factors that influence it and working on them 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:
Your interest rate will influence the overall size of your ongoing repayments, making it one of the more important variables at play when calculating your borrowing power.
However, there is a second, indirect way in which a home loan’s interest rate can affect your borrowing power, and even your overall eligibility for any given home loan.
The Australian Prudential Regulation Authority (APRA) expects lenders to factor in something called a ‘serviceability buffer’ when assessing each and every home loan application they receive. The current minimum interest rate serviceability buffer is three percentage points, which means that 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.
N.B.: 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.