What Is Home Loan Borrowing Power?

Home loan borrowing power is an estimate of how much a lender may be prepared to lend based on your income, expenses, debts and other financial circumstances.

It is sometimes also called borrowing capacity or home loan serviceability.

A borrowing power calculator can provide a useful starting point when planning a property purchase, but it cannot reproduce every lender’s credit assessment.

How to Use the Borrowing Power Calculator

Enter your household’s monthly after-tax income and any additional regular net income. Then enter your normal living expenses, existing monthly debt repayments and total credit card limits.

Finally, enter an indicative mortgage interest rate, the assessment buffer you want to model, your preferred loan term and, optionally, your available deposit.

The calculator estimates:

• Monthly repayment capacity;
• An indicative maximum home loan;
• The assessment interest rate used;
• Approximate repayments at the entered home loan rate;
• An indicative property budget including your deposit; and
• How borrowing power may change at a different assessment rate.

How Is Borrowing Power Estimated?

This calculator first estimates how much monthly household cash flow remains after the expenses and debt commitments you enter.

The available repayment amount is then converted into an indicative maximum loan using an amortising-loan calculation at the selected assessment interest rate.

What Is an Assessment Rate?

A lender does not necessarily assess a home loan using only the interest rate you expect to pay.

Serviceability assessments can use a higher rate to test whether a borrower could continue making repayments if interest rates were higher.

In this calculator:

For example, if you enter a home loan rate of 6.00% and an assessment buffer of 3.00 percentage points, the calculator assesses repayment capacity at 9.00%.

The buffer is editable because lender policies and regulatory settings can change and individual lenders may apply additional floors or rules.

Why Does This Calculator Ask for After-Tax Income?

Using monthly net income avoids applying a simplified income-tax model that may not accurately reflect your actual situation.

Your take-home income can be affected by factors such as:

• PAYG withholding;
• Salary packaging;
• HELP or other study-loan repayments;
• Superannuation arrangements;
• Bonuses and commissions;
• Allowances;
• Investment income; and
• Other deductions or adjustments.

Using your actual net household income makes this calculator more transparent, although lenders will generally perform their own income assessment using gross income and supporting documents.

How Do Living Expenses Affect Borrowing Power?

Higher household expenses reduce the amount of income available to service a new mortgage and can therefore reduce borrowing capacity.

Living expenses can include:

• Food and groceries;
• Utilities;
• Transport;
• Insurance;
• Childcare and dependent expenses;
• Schooling;
• Medical expenses;
• Subscriptions;
• Entertainment;
• Existing housing costs; and
• Other recurring household spending.

Why Do Credit Card Limits Affect Borrowing Power?

A lender may assess a credit card based partly on its available limit, not simply the amount currently owing.

For example, a card with a $15,000 limit can represent a potential future liability even if the current balance is zero.

This calculator therefore converts the total credit-card limit into an assumed monthly commitment using the adjustable percentage shown in the input section.

Different lenders may apply different treatment, so this is an estimate rather than a universal rule.

What Other Debts Can Reduce Borrowing Capacity?

Existing repayment commitments can reduce the amount available for a new mortgage.

These may include:

• Personal loans;
• Car loans;
• Existing mortgages;
• Buy-now-pay-later commitments;
• Credit cards;
• Study or education debt treatment;
• Child support obligations; and
• Other recurring financial liabilities.

Does Having Dependants Reduce Borrowing Power?

Dependants can affect borrowing power because household expenses generally increase as more people rely on the household income.

Rather than applying an arbitrary dollar amount per dependant, this calculator asks you to include realistic dependant-related costs in your monthly living expenses.

Actual lenders may use their own household expenditure benchmarks based on family size and other circumstances.

How Does Interest Rate Affect Borrowing Power?

When the assessment interest rate rises, the same monthly repayment supports a smaller loan balance.

This means borrowing power will generally decrease when serviceability rates rise and increase when assessment rates fall, assuming all other inputs remain unchanged.

The sensitivity section above shows the estimated borrowing power using an assessment rate one percentage point below and one percentage point above the selected rate.

Does a Longer Loan Term Increase Borrowing Power?

A longer loan term generally lowers the repayment required for a given loan amount. Mathematically, this can increase the loan amount that can be serviced using the same monthly repayment capacity.

However, a longer term can also increase total interest paid over the life of the mortgage.

Lenders may also apply age, retirement, exit-strategy and other requirements that are not modelled by this calculator.

Borrowing Power vs Pre-Approval

A borrowing power estimate is not the same as home loan pre-approval.

A lender or mortgage broker may need to assess:

• Income evidence;
• Employment status and history;
• Bank statements;
• Credit history;
• Existing liabilities;
• Living expenses;
• Loan-to-value ratio;
• Property security;
• Deposit source;
• Residency status;
• Loan purpose; and
• Lender-specific credit policy.

A formal lending decision can therefore be materially different from an online borrowing-capacity estimate.

Borrowing Power vs Property Budget

Your borrowing power is the estimated loan amount. Your potential property budget may also include your available deposit.

However, not all of your deposit can necessarily be applied to the purchase price because property-buying costs may also need to be paid.

Potential upfront costs include:

• Stamp duty or transfer duty;
• Conveyancing;
• Building and pest inspections;
• Loan fees;
• Lenders mortgage insurance where applicable;
• Title and registration fees; and
• Moving and initial property costs.

How Can I Potentially Improve Borrowing Power?

Depending on your circumstances, borrowing capacity can sometimes improve if you:

• Reduce existing consumer debt;
• Reduce unused credit-card limits;
• Lower recurring expenses;
• Increase stable assessable income;
• Increase your deposit;
• Choose a lower loan amount;
• Extend the loan term where suitable; or
• Compare lender serviceability policies.

Whether any of these strategies is appropriate depends on your own financial circumstances.

Borrowing Power Calculator Assumptions

This calculator makes several simplifying assumptions:

• Income entered is monthly after-tax household income;
• All income entered is available and sustainable;
• Living expenses accurately reflect household spending;
• Existing debts are represented by their monthly repayment;
• Credit cards are assessed using the percentage entered;
• The proposed home loan is principal and interest;
• The assessment interest rate remains constant;
• No lender-specific minimum assessment floor is applied;
• No income shading is applied;
• No lender-specific household expenditure benchmark is applied;
• No credit-score or credit-policy assessment is performed; and
• No lender approval is implied by the result.

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