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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 to assess capacity. 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 splits into principal and interest. Early on, most goes to interest. Fortnightly payments save $50k-$100k over the life of your loan.

Not directly — your deposit affects LVR (loan-to-value ratio), not borrowing capacity. However, a larger deposit means less LMI and a smaller loan, which gives you more breathing room in repayments.

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.