Understanding your borrowing power is the essential first step in your property journey. Whether you're a first home buyer, upgrading, or investing, knowing how much a lender might approve helps you search with confidence and negotiate from a position of strength.
How Our Borrowing Power Calculator Works
Our calculator uses a simplified version of the methodology Australian lenders use to assess home loan applications. Here's what happens behind the scenes:
- Income Assessment: We calculate your after-tax income using approximate ATO resident individual tax brackets, including the Medicare levy. Rental income is shaded to 80% as lenders typically do.
- Expense Calculation: We use baseline living expense estimates by household size, similar to the HEM benchmarks lenders use. You can override with your actual expenses.
- Debt Servicing: Credit card limits are assessed at 3% per month (industry standard). Other loan repayments and HECS/HELP obligations are factored in.
- Surplus Calculation: Your monthly surplus (income minus expenses minus commitments) determines the maximum loan repayment you could support.
- Borrowing Estimate: Using an amortisation formula at the stressed rate (actual rate + serviceability buffer), we calculate the maximum loan principal you could service.
Understanding the Results
Unlike most calculators that show a single number, we provide a range because different lenders will assess your application differently:
- Conservative: What stricter lenders (often major banks) might approve
- Standard: A typical assessment across mainstream lenders
- Optimistic: What more flexible lenders might consider
We also show your estimated repayments at both the current rate and the stressed rate, so you can see the real-world impact of potential rate rises on your budget.
Key Factors That Affect Borrowing Power in Australia
Interest Rates
Higher interest rates directly reduce borrowing power. For every 0.25% rate increase, a typical borrower might lose $10,000-$15,000 in borrowing capacity. The serviceability buffer amplifies this effect because lenders test at an even higher rate.
Employment Type
PAYG employees typically have the simplest assessment. Self-employed borrowers and contractors may face additional scrutiny, with lenders often requiring two years of financial statements and potentially using a lower income figure for assessment.
Property Type
Whether you're buying an owner-occupied property or an investment can affect the rate and assessment. Investment loans typically have slightly higher rates, and some lenders apply different serviceability criteria for investment properties.
Next Steps After Your Estimate
Once you have your borrowing power estimate, we recommend:
- Review the assumptions and adjust if needed
- Get your personalised report emailed to you
- Book a free call with a Northmark Finance broker for professional advice
- Work on any areas that could improve your borrowing power
- Get formal pre-approval before you start property hunting
Book your free consultation to discuss your borrowing power with an experienced broker.