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How borrowing capacity is calculated

Your borrowing capacity depends on income, debts, and living expenses. Lenders test you at 3% above the actual rate to ensure you can handle rate rises.

Lenders assess how much you can borrow based on: your gross income, existing debts (including HECS/HELP, credit cards, car loans, personal loans), living expenses, the number of dependants, and a serviceability buffer (currently 3% above the actual interest rate). This buffer means the bank tests whether you could afford repayments if rates rose significantly.

Important: credit card LIMITS count as debt — even if you never use the card. A $10,000 credit card limit can reduce your borrowing capacity by $30,000–$50,000. Cancel unused cards before applying.

Most lenders will lend 5–6x your gross annual income, subject to debts and expenses. A single person earning $80,000 can typically borrow $400,000–$480,000. A couple earning $150,000 combined can borrow $750,000–$900,000.

How to increase your borrowing power

Cancel unused credit cards, pay down personal debt, reduce living expenses before applying. Each credit card limit reduces capacity by 3–5x.

• Cancel unused credit cards: Each card limit reduces borrowing capacity by 3–5x the limit.
• Pay down personal debt: Car loans, afterpay, personal loans all reduce capacity.
• Reduce living expenses: Lenders look at 3 months of bank statements. Cut discretionary spending before applying.
• Increase your income: Overtime, bonuses, and second jobs count — but you usually need 3–6 months of history.
• Choose a longer loan term: 30 years gives higher capacity than 25 years (but costs more in total interest).
• Use a broker: Different lenders assess capacity differently. A broker finds the one that maximises your borrowing. Get matched for free.

Every lender uses a slightly different formula. Some are stricter on living expenses, some treat HECS more favourably, some offer higher LVRs. This is exactly why using a mortgage broker makes sense — they compare 30+ lenders to find the one that gives you the best result.

Does HECS/HELP affect borrowing power?

Yes — your HECS repayment counts as a liability. On $80k salary, HECS can reduce capacity by $20k–$30k. Some lenders treat it more favourably than others.

Your HECS repayment (based on your income) is counted as a liability, reducing how much you can borrow. On an $80,000 salary, your HECS repayment is about $3,200/year — which can reduce borrowing capacity by approximately $20,000–$30,000. Some lenders are more favourable with HECS than others — a broker knows which ones.

How are mortgage repayments calculated?

Each repayment on a principal-and-interest home loan splits in two: part pays interest (the cost of borrowing), part reduces the principal (the amount you owe). Australian lenders calculate interest daily on your outstanding balance.

In the early years, most of each repayment is interest — on a $500,000 loan at 6%, a $3,000 monthly payment is roughly $2,500 interest and only $500 paid off the loan. As your balance drops, that flips: more goes to principal, less to interest. This is called amortisation.

One simple trick: pay fortnightly instead of monthly. You make 26 payments a year instead of 12 monthly — the equivalent of 13 monthly payments. That alone can save around $95,000 in interest and knock 5 years off a typical 30-year loan.

How extra repayments save you thousands

Extra $200/month on a $500k loan saves ~$108,000 in interest and pays it off 7 years early. Most variable loans allow unlimited extra repayments.