How to use our borrowing power calculator
Your Mortgage’s borrowing power calculator considers a few important factors that can determine your borrowing capacity, or how much you would be eligible to take out on a home loan. If you’re not sure, just put an estimate.
There are three parts to this calculator: Annual income, monthly expenses and loan details.
Annual income. The calculator will ask you to provide all your income streams including your net salary before tax, rental income, and any other regular sources of income.
Monthly expenses. You’ll need to enter your overall day-to-day expenses, existing loan repayments and any other financial commitments such as insurance, additional superannuation contributions, and the combined limit of your credit cards and overdrafts.
Loan details. Lastly you’ll need to fill in the details of your loan including the interest rate and the loan term. Take note the calculator will estimate your borrowing power based on a fixed interest rate over a loan term.
How much can I borrow?
Your income, expenses and deposit are the biggest factors determining your borrowing power, but lenders also consider other factors such as your existing debts and if you are using a guarantor for the loan.
Our borrowing power calculator asks you to enter details including your loan term and interest rate, income and expenses, and any outstanding debts and credit card limits.
Here’s how these factors can impact your borrowing capacity.
How the interest rate and loan term can impact your borrowing power
Changing the interest rate and loan term can have a significant impact on your borrowing power.
The lower the interest rate, the higher your borrowing capacity as the total amount of interest applicable to the entire life of the loan will be lower – assuming interest rates do not change.
If the loan term is shortened, this will decrease the amount of interest you will be charged over the entire life of the loan. This means your monthly repayments will predominantly pay down the principal amount of the loan, however the monthly repayments will be substantially higher as a result.
It’s important to note the calculator assumes a fixed rate for the entire life of the loan. The calculator also doesn't factor in interest rate fluctuations.
How your income and expenses can impact your borrowing power
The more income you can prove you earn to a lender, the greater your borrowing capacity is likely to be.
Consequently, the likelihood of being issued with a home loan becomes more attainable — especially if your expenses or debts are well covered by your income.
Sometimes, high-income earners may be surprised to learn their borrowing capacity is low because they have a lot of financial commitments leaving them with little disposable income, which can give lenders a reason to reduce the amount they are willing to lend.
On the other end of the spectrum are your expenses. If your expenses are higher than your income, the lower your borrowing capacity will be as the lender will view you as being unable to manage home loan repayments.
Banks and lenders are ultimately trying to assess you as a credit risk. If your expenses outweigh your income, regardless of how much you earn, then the lender perceives you as ‘high risk’.
How your existing credit card and overdraft limit can impact your borrowing power
Lenders will consider any credit cards to be drawn to their full limit even if you have never exceeded the allocated credit limit or found yourself behind repayments. For example, if you have one credit card with a $10,000 limit and another with a $3,000 limit, the lender will write down a $13,000 debt against you.
This is why it’s important to close any unused credit cards or reduce the credit limit on cards you’re currently using.
It’s also important to tackle any outstanding credit card or other high-interest debts before applying for a home loan. Any red flags on your credit history can pose the risk of the lender denying your application.
Can I increase my borrowing power?
It’s generally not recommended to borrow more than you can comfortably afford because you don’t want to overstretch yourself and struggle to meet your repayments. However, the amount you can borrow may differ from lender to lender so it can be worth boosting your borrower power.
Here are some ways to do that:
Save a bigger deposit. The bigger your deposit is, the bigger your borrowing power as lenders look for a consistent record of savings. A bigger deposit also reduces your monthly repayments and interest.
Pay off your debts. Debts reduce your borrowing capacity particularly if they’re high-interest debts like credit card or personal loan debt. If you can show that you pay your credit card off in full every month, this will work in your favour when lenders look at your credit history.
Enquire with different lenders. Each lender will have their own idea of how much they’re willing to lend you based on their own criteria and methods of calculation. This is why it’s a good idea to enquire with different lenders to see what the difference is, at it can sometimes be quite substantial.
Reduce your spending. Trimming your spending for a few months will help you save for a bigger deposit and increase your borrowing power. Draw up a budget and consider where you can cut back - shop around for a cheaper phone and internet plan, cancel your gym membership, stop eating out and cook all your meals at home instead, and so on.
Reduce your excess credit limits. Cancel any unused credit cards and reduce the credit limit on any cards you are currently using as lenders will consider any credit cards to be drawn to their full limit. For example, if you have a credit card with a $10,000 limit and another with a $3,000 limit, the lender will write down a $13,000 debt against you.
Increase your income. Increasing your income is a great way to boost your borrowing capacity. Consider whether you can take on extra shifts at work, get a second job, or consider your ability to get promoted in your current workplace and negotiate for a pay rise.
Frequently asked questions
Will my credit score impact my borrowing power?
Your credit history isn’t generally included in borrowing power calculations but your history of repayments is something a lender will look at when assessing your home loan application, so it’s important to check your credit score before applying for a loan.
Can I find out how a lender calculates borrowing capacity?
While lenders generally all use the same basic method, each lender has its own way of calculating your expenses and borrowing capacity based on their appetite for risk, which is why your borrowing power may differ from lender to lender. Unfortunately, lenders don’t make their borrowing power calculation methods public knowledge.
Do dependents impact my borrowing power?
The number of dependents you support factors into your borrowing power because they are an ongoing expense that plays into what you can afford to repay on a home loan over the long term.
What is borrowing power?
‘Borrowing power’ is a term lenders use to describe how much you may be able to borrow for a home loan, depending on your financial situation. Things that can impact your borrowing power include your income, expenses, debts, and how much deposit you have saved.