How to Calculate Your Borrowing Power
Borrowing power (or borrowing capacity) is the maximum amount a lender will approve you to borrow based on your financial situation.
What Lenders Assess
Income
Lenders assess your gross income including:
- Salary/wages (PAYG)
- Rental income (usually 70–80% of it)
- Business income (2-year average for self-employed)
- Overtime (if regular and documented)
- Government benefits (some lenders accept Centrelink)
Expenses
Lenders calculate your living expenses using either:
- Your declared expenses, or
- The Household Expenditure Measure (HEM) — a minimum benchmark based on household size and location
Whichever is higher is used in the assessment.
Existing Debts
All your current financial commitments reduce your borrowing power:
- Credit card limits (not just balances — typically 3.8% of the limit per year)
- Car loans
- Personal loans
- HECS/HELP debt (around 1% of balance per year)
- Other mortgages
The Serviceability Buffer
APRA requires lenders to test your ability to repay at the loan rate plus 3%. This is the biggest limiter on borrowing capacity.
A Simple Example
- Household income: $150,000/year
- Expenses: $50,000/year (HEM)
- Credit card limit: $10,000
- HECS debt: $30,000
- Loan rate: 6.00% | Assessment rate: 9.00%
Estimated maximum borrowing power: ~$750,000–$800,000
How to Increase Your Borrowing Power
- Close unused credit cards — reduces committed liabilities
- Pay off small debts before applying
- Add a co-borrower (partner or parent)
- Delay large purchases before applying
- Provide all income sources — bonuses, overtime, rental income