Borrowing Power Calculator
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The numbers above are a starting point. For decisions involving your full financial picture — tax, debt, super, investments — a qualified Australian financial adviser can give tailored guidance.
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How do Australian banks calculate your borrowing power?
Every lender in Australia is required by APRA (the banking regulator) to assess your home loan serviceability at your proposed interest rate plus a minimum 3% buffer. This means if the advertised rate is 6.5%, the bank tests whether you could afford repayments at 9.5%. This rule was introduced to prevent borrowers from defaulting if rates rise.
Lenders then estimate your monthly surplus — your take-home income minus living expenses, existing debt repayments, and a proportion of your credit card limits — and back-calculate the maximum loan that surplus could service at the buffer rate.
Each lender uses slightly different expense benchmarks (called HEM — Household Expenditure Measure), income treatment rules, and credit card calculations, which is why your borrowing power can vary by $50,000–$150,000 between different lenders.
- Credit cards reduce borrowing power: Most lenders assess credit card capacity at 3.8% of the total limit per month — regardless of your actual balance. A $20,000 limit costs you $760/month in assessed commitments. Consider reducing or cancelling unused cards before applying.
- HECS reduces borrowing power: HECS repayments are treated as monthly commitments. At $90,000 income, your HECS repayment reduces borrowing capacity by approximately $40,000–$70,000 depending on the lender.
- Employment type matters: Casual workers, self-employed people, and contractors typically have their income assessed more conservatively — often using a 2-year average. Lenders want to see stability.
- How to increase borrowing power: Pay down personal debts, reduce credit card limits, avoid new loan applications in the months before applying, and maintain stable employment.
- Deposit requirements: Most lenders require a minimum 5% genuine savings deposit. To avoid Lenders Mortgage Insurance (LMI), you generally need a 20% deposit. LMI can cost $5,000–$30,000 but allows you to buy sooner.
Frequently asked questions
Yes, significantly. Lenders treat your annual HECS repayment as a regular expense. On a $90,000 income with HECS under the 2025-26 system, your repayment is approximately $3,450 per year ($288/month), which reduces borrowing capacity by roughly $40,000–$70,000. If your HECS balance is small, consider paying it off before applying — the borrowing power increase may outweigh the interest savings from keeping the debt.
The minimum is generally 5% of the purchase price (genuine savings — money saved by you, not gifted). However, with less than 20% deposit you will typically need to pay Lenders Mortgage Insurance (LMI), which can cost $5,000–$30,000. The LMI cost is usually added to your loan. First home buyers may access government schemes (First Home Guarantee) allowing 5% deposits without LMI. Don't forget to budget separately for stamp duty, conveyancing, and inspection fees.
LMI (Lenders Mortgage Insurance) protects the lender — not you — in case you default. It applies when your deposit is less than 20% of the property value (LVR above 80%). It can cost $5,000 to $30,000+ depending on the loan size. You can avoid it by: saving a 20% deposit, using the First Home Guarantee (government scheme covering the deposit gap for eligible buyers), using a family guarantee (parents use their property as security), or receiving a professional package discount if you are a doctor, lawyer, or accountant (some lenders waive LMI for certain professions).
Yes. Most lenders assess credit card capacity at approximately 3.8% of your total credit limit each month — not your actual balance. A $10,000 limit is treated as a $380/month commitment. This reduces your borrowing power by roughly $40,000–$50,000. If you have multiple cards with high limits you are not using, reducing or cancelling them before applying can meaningfully improve your borrowing capacity. Do this several months before you apply — recent card cancellations can briefly affect your credit score.
A mortgage broker typically compares 20–40 lenders at once, including banks, credit unions, and non-bank lenders. They handle the paperwork, know which lenders will approve your situation, and negotiate rates. Their fee is paid by the lender as a commission — not by you — so there is usually no cost to using one. Going direct to your own bank gives you speed and familiarity but access to only one product. Given the differences in borrowing power and rates between lenders, a broker is generally the better starting point, especially for first home buyers.