Home loan borrowing power calculator

Your borrowing power is the amount of money a lender might potentially lend you based on your unique financial situation. Borrowing power is generally calculated using your regular income and living expenses, plus a few other factors.

These tend to 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.

Borrowing power is generally a more helpful yardstick than deposit size alone for prospective homebuyers. 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.

Whereas borrowing power explicitly ballparks the amount you could potentially borrow, and the property values you could potentially afford based on how much you can afford to repay.

As we’ve mentioned, there are many different factors that can influence the amount of money a lender is willing to let you borrow. However, there are a few notable exceptions, including:

• Income. Just because you earn a lot doesn’t automatically mean you’ll be able to borrow a lot. Because your borrowing power is based on your income after all your regular expenses have been accounted for, you could have a relatively high income and a bank still might not give you a new home loan if you’re not saving any of it. Conversely, you could earn a more modest income, but if you spend very little of it, your borrowing capacity could be higher than you might think.
• Existing debt and assets. Contrary to popular belief, existing debt isn’t always the devastating blow to your home buying ability that some may think. Existing debt can sometimes strengthen your application if you have a proven track record of meeting your repayments on time, and it doesn’t chew into too much of your regular income. However, existing debts can also negatively affect your borrowing power by reducing the amount of income you have available to put towards home loan repayments.
• Deposit amount. As your deposit doesn’t really have anything to do with your regular income and expenses, you may be surprised to know that the size of your deposit generally won’t have too much of an impact on your borrowing power – provided you’ve saved an adequately sized deposit relative to the purchase price you’ve got in mind. 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, it’s important to know how your borrowing power might be affected by your buying circumstances. If an investment property will generate rental income, that could increase your borrowing power in the event that 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 swinging for a fixed rate, variable rate, construction, line of credit or split rate home loan. However, as your borrowing power will be affected by the interest rate of the loan you’re applying for, one loan type having a significantly higher rate than another could see your borrowing power decrease for the higher-interest loan and increase for the lower. Additionally, borrowers looking to make interest-only repayments will typically see their borrowing power reduced due to how lenders’ borrowing power algorithms factor in the interest-only period, in which the 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 you may see your borrowing power 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 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:

• Reducing your living expenses. It’s been said many times over, but consider cutting down on everyday treats and unnecessary spending. While buying a coffee a day might not seem like a lot in the context of building up savings, it’s not insignificant in the context of your weekly, fortnightly or monthly repayments. If you struggle with drawing up or sticking to a budget, you may want to try using a budget planner, and if you have a credit card or two, perhaps consider reducing your credit card limits to reduce your potential spending.
• Pay down existing debt. 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. While having debt isn’t always an immediate dealbreaker when it comes to getting a home loan, it likely won’t help you if you’re looking to increase your borrowing power. 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? If you don’t have a problem with looking at smaller homes, it could be an effective way to make your borrowing power work harder in your favour.

Your interest rate will influence the overall size of your ongoing mortgage 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.