Borrowing Power Calculator
Enter your income and expenses to estimate how much you may be able to borrow.
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You may be able to borrow up to
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How Banks Calculate Your Borrowing Power
When you apply for a home loan in Australia, lenders do not simply look at your salary and decide how much to lend you. Instead, they conduct a detailed serviceability assessment that examines your entire financial position - your income, your existing debts, your living expenses, and the number of people who depend on your income. The goal is to determine whether you can comfortably afford the loan repayments, not just today, but also if interest rates were to rise significantly in the future.
Calculate Net Income
Banks take your gross (before-tax) income and apply the current Australian tax rates to estimate what you actually take home. If you earn income from multiple sources - such as a salary, rental property, or a second job - lenders may apply different weightings to each. For example, most banks will only count 80% of your rental income because they account for vacancy periods and property expenses. Overtime and bonus income is often shaded to 50-80% unless you can demonstrate a consistent history over at least two years.
Subtract Monthly Commitments
Next, lenders subtract your monthly commitments. This includes any existing loan repayments (personal loans, car loans, HECS-HELP), your declared living expenses, and a notional repayment on your credit card limits. The remaining amount is your surplus income - the money available to service a new home loan.
Determine Maximum Loan
This surplus is then used in a loan amortisation formula to calculate the maximum loan size you can afford at the assessment rate.
Assessment Rates and Stress Testing
One of the most important concepts in borrowing power is the assessment rate (also called the serviceability rate or stress-test rate). Banks do not assess your ability to repay at the actual interest rate you will be charged. Instead, they add a buffer - typically 3 percentage points above the current rate, or a minimum floor rate of around 5.5%, whichever is higher. For example, if the actual variable rate is 6.5%, the bank will assess your repayments as though the rate were 9.5%.
Loan at actual rate (6.5%)
Loan at stress-test rate (9.5%)
Why stress testing matters
This stress testing was introduced by the Australian Prudential Regulation Authority (APRA) to ensure that borrowers can absorb future rate increases without defaulting on their loans. The buffer rate has varied over the years - APRA increased it from 2.5% to 3% in October 2021 during the low-rate environment, and it has remained at that level since. This calculator uses an assessment rate of 8.5%, which is a reasonable approximation of most major bank policies in the current rate environment.
The practical effect of stress testing is significant. A borrower who could afford $4,000 per month in repayments at 6.5% might be able to borrow around $630,000. But at the assessment rate of 9.5%, that same $4,000 only supports a loan of approximately $470,000. This is why many borrowers find their borrowing power is lower than they expected - the stress test rate is the primary limiting factor.
Factors That Affect Your Borrowing Power
Credit Card Limits
Credit card limits are one of the biggest hidden drags on borrowing power. Even if you pay your credit card in full every month and owe nothing, banks assume you could max out the card at any time. They calculate a notional monthly repayment of approximately 3.8% of your total credit limit. This means a $10,000 credit card limit reduces your monthly surplus by $380, which can lower your borrowing power by $50,000 or more. Cancelling unused credit cards or reducing your limits before applying for a loan is one of the simplest ways to increase your borrowing capacity.
Living Expenses (HEM)
Living expenses are assessed using the Household Expenditure Measure (HEM), an industry benchmark based on ABS data. HEM provides a minimum floor for living expenses based on your household size and income. If you declare expenses lower than HEM, the bank will use the HEM figure instead. For a single person, the HEM floor is typically around $1,800 per month; for a couple with two children, it can exceed $3,000 per month. Declaring realistic expenses is important - if a bank finds your declared expenses are unrealistically low, it may trigger additional verification.
Number of Dependants
Dependants have a direct impact because each additional dependant increases the HEM floor. A single applicant with no dependants might have a HEM of $1,800 per month, but adding two children could push it to $2,500 or more. This reduces your surplus income and therefore your maximum loan amount. The number and age of dependants also affects how lenders view your financial stability.
Existing Debts
Existing debts such as personal loans, car loans, and buy-now-pay-later accounts all reduce borrowing power. Banks look at the monthly repayment obligations on these debts and subtract them from your income. Even small debts can have an outsized impact - a $200 per month car loan repayment could reduce your home loan borrowing power by $30,000 to $40,000 because of the compounding effect over a 30-year loan term at the stress-test rate.
Tips to Increase Your Borrowing Power
Close or reduce credit cards
As mentioned above, unused credit limits count against you. Close any cards you do not use, and consider lowering the limits on the cards you keep. This is often the single most effective way to boost your borrowing capacity without changing your actual financial position.
Pay off personal loans and car loans
Clearing existing debts before applying for a mortgage removes those repayment obligations from the assessment. If you have a small car loan or personal loan balance, paying it off can free up significant borrowing power.
Avoid buy-now-pay-later services
Afterpay, Zip, and similar services now appear on your credit file in many cases. Banks increasingly factor these into their assessments, even though individual repayments may be small. Clearing BNPL balances and closing accounts before your loan application can help.
Increase your income or add a co-borrower
Joint applications combine both incomes, which can substantially increase borrowing power. Alternatively, if you receive regular overtime or commission income, gather at least two years of evidence (payslips, group certificates) so lenders can include it in the assessment.
Choose the right lender
Different banks have different policies. Some are more generous with overtime income, while others apply lower HEM floors or use lower assessment rates. A mortgage broker can help identify which lender gives you the best borrowing power based on your specific circumstances. The difference between the most and least generous lenders can be $100,000 or more on the same income.
This borrowing power calculator uses the same methodology as Australian banks to estimate your maximum loan amount. It applies the current Australian tax brackets to calculate your net income, uses the Household Expenditure Measure (HEM) as a minimum floor for living expenses, treats credit card limits as a potential liability (3.8% of the limit per month), discounts rental income to 80%, and assesses affordability at a stress-test interest rate of 8.5% over a 30-year loan term.
The result is an estimate only and should be used as a starting point for your property search. Individual lenders may calculate borrowing power differently based on their own credit policies, risk appetite, and product offerings. For a formal assessment, we recommend speaking with a licensed mortgage broker who can assess your application across multiple lenders and find the best fit for your situation.