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Borrowing Power Calculator

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Calculate your borrowing power using our calculator below or book an appointment now.

What is Borrowing Power?

Borrowing power (or borrowing capacity) for a residential mortgage is a crucial aspect of the home loan process, influencing not only the amount you can borrow but also the terms and conditions of your loan. It refers to the maximum amount of money a lender is willing to lend you to obtain a home loan. This capacity is determined based on various financial factors and is crucial for prospective home loan applicants to understand before applying for a home loan.

Factors Affecting Borrowing Capacity:

  1. Income: Lenders typically consider your gross income, including salary, wages, bonuses, commissions, and any other sources of regular income. A higher income generally leads to a greater borrowing capacity.

  2. Living Expenses: Your living expenses are deducted from your income to demonstrate what's left over to repay your mortgage.

  3. Assets: Lenders assess your income generating assets, like a high interest earning savings account, rental income from an investment property, and dividends from share portfolios.

  4. Liabilities: Liabilities (debts) reduce your borrowing capacity. Credit cards, personal loans, existing mortgages, student loans, zip pay and after pay are all examples of liabilities which affect your borrowing power.

  5. Debt-to-Income Ratio (DTI): This ratio compares your monthly debt payments to your gross monthly income. Lenders prefer a lower DTI, as it indicates that you have sufficient income to cover your debts and are less likely to default on the mortgage.

  6. Employment History and Stability: A steady employment history and stable income can positively impact your borrowing capacity by demonstrating your ability to maintain mortgage payments over time as the lender is more accepting of your income. 

  7. Deposit: While not directly related to borrowing capacity, a larger deposit can reduce the amount you need to borrow and may increase your chances of loan approval.

How do Lenders Calculate Borrowing Capacity?

There's no exact science as every lender has a different method and/or policy to calculate your borrowing capacity. As a mortgage broker, we have access to over 40+ lender borrowing capacity calculators we use for our customers to ensure they qualify for a loan before applying for one. This improves your ability to be approved, safe guards your credit score and reduces the possibility for your application to be declined. You can use our calculator below to give you a rough indication.

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Borrowing capacity is a complex but essential aspect of the home loan process. By understanding the factors that influence borrowing capacity and employing strategies to maximise it, will increase your chances of securing a mortgage that meets your needs and financial goals. Working with a knowledgeable lender or mortgage broker can also help navigate the borrowing process and ensure you qualify for a home loan.

Strategies to Maximise your Borrowing Capacity

  1. Reduce Existing/Unnecessary Debt: Pay off high-interest debts, reduce credit card limits and consolidate loans to lower your DTI ratio and improve your borrowing capacity.

  2. Shop Around for Lenders: Compare your options. Different lenders may offer different borrowing terms and criteria, so it's important to shop around and compare offers to find the best fit for your financial situation. 

  3. Improve Your Credit Score: Pay your bills on time, reduce outstanding debt, and avoid opening new credit accounts before applying for a mortgage to improve your credit score and increase your borrowing capacity.

  4. Increase Your Income: Consider ways to increase your income, such as negotiating a raise, taking on a second job, or starting a side business, to boost your borrowing capacity.

  5. Save for a Larger Deposit: Save money for a larger down payment, as this can reduce the amount you need to borrow so you won't need a higher borrowing capacity.

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