Borrowing Power Calculator

Deposit Amount

The size of your deposit significantly impacts your borrowing power. A larger deposit can increase your borrowing capacity and secure more favorable interest rates.

Equity in Existing Home

For homeowners, leveraging the equity in your current property can enhance your borrowing potential. Usable equity allows you to access funds based on your home’s value.

Total Income After Tax

Lenders assess your post-tax income to determine your ability to service the loan. Higher income generally results in greater borrowing capacity.

Living Expenses

Your monthly living expenses are crucial in calculating disposable income for loan repayments. Lower expenses mean more income can be allocated towards your mortgage.

Additional Considerations

Factors such as existing debts, credit history, assets, liabilities, dependents, and the economic climate also influence your borrowing capacity.

Understanding Household Expenditure Measurement (HEM)

HEM is a benchmark used by lenders to estimate living expenses during home loan assessments. It provides a standard measure of typical household spending based on income and family size. Lenders may adjust HEM to tighten lending criteria for specific scenarios.

Maximizing Borrowing Power with a Deposit

Lenders in Australia prefer larger deposits, as they reduce risk and enhance borrowing capacity. A higher deposit results in a lower loan-to-value ratio (LVR), often leading to better loan terms and reduced fees.

Loan-to-Value Ratio (LVR)

LVR is calculated by dividing the loan amount by the property’s value. A lower LVR indicates a smaller loan relative to the property’s value, reducing risk for lenders and potentially offering better loan terms.

Avoiding Lender’s Mortgage Insurance (LMI)

To avoid LMI, you typically need a deposit of at least 20% of the property’s value. LMI protects lenders if you default on your home loan, and borrowers with deposits below 20% are considered higher risk.

1. What is borrowing power?

   • Borrowing power refers to the maximum amount of money you can borrow from a lender, typically for a home loan, based on your financial situation.

2. What factors affect my borrowing power?

   • Several factors influence borrowing power, including income, living expenses, existing debts, credit history, deposit size, and property value.

3. How can I increase my borrowing power?

   • You can increase your borrowing power by reducing debts, increasing your income, saving a larger deposit, improving your credit score, and lowering living expenses.

4. Why is a larger deposit beneficial for borrowing power?

   • A larger deposit reduces the loan-to-value ratio (LVR), which can lead to better interest rates and potentially avoid the need for Lender’s Mortgage Insurance (LMI).

5. How do lenders assess my living expenses?

   • Lenders assess living expenses using the Household Expenditure Measure (HEM) or by evaluating your declared expenses to determine your capacity to repay the loan.

6. What is the Household Expenditure Measure (HEM)?

   • HEM is a benchmark used by lenders to estimate a borrower’s living expenses based on factors like income and family size.

7. How does my credit score impact borrowing power?

   • A higher credit score can enhance your borrowing power by demonstrating your reliability as a borrower, potentially leading to better loan terms and interest rates.

8. Can existing debts reduce my borrowing power?

   • Yes, existing debts can reduce your borrowing power as they affect your debt-to-income ratio, which lenders consider when assessing your ability to repay a loan.

9. How do I calculate my borrowing power?

   • You can calculate your borrowing power using online calculators that consider factors like income, expenses, debts, and deposit size to estimate your maximum loan amount.

10. What should I do if my borrowing power is lower than expected?

    • If your borrowing power is lower than expected, review your financial situation, consider reducing expenses or debts, and consult with a financial advisor or lender to explore options for improvement.