Borrowing Capacity Calculator Australia
Your borrowing capacity determines how much a bank will lend you for a property purchase. Understanding how it is calculated — and what factors affect it — helps you set a realistic property budget and avoid surprises during pre-approval. This guide breaks down the key formulas, provides income-based estimates, and shares practical tips to maximise your borrowing power.
How Banks Calculate Borrowing Capacity
At its core, borrowing capacity is a cash flow calculation. Banks assess whether your income, after taxes and all existing commitments, is sufficient to service the proposed loan repayments — with a safety margin built in.
The Basic Formula
- 1. Start with gross income (salary, rental income, bonuses, overtime)
- 2. Apply income "shading" — banks may only count 80% of bonuses, 60-80% of rental income, and 80% of overtime
- 3. Subtract tax obligations
- 4. Subtract living expenses (the higher of your declared expenses or the bank's benchmark, known as HEM)
- 5. Subtract existing commitments (credit card limits, personal loans, car loans, HECS/HELP repayments)
- 6. The remaining "surplus" income determines the maximum loan repayment you can afford
- 7. Convert that repayment amount into a loan balance using the assessment rate (your actual rate + 3% buffer)
The 3% Serviceability Buffer
APRA requires all banks to assess your ability to repay at a rate at least 3% above the loan's actual interest rate. If your loan rate is 6.0%, the bank calculates whether you can afford repayments at 9.0%. This single factor has the biggest impact on how much you can borrow.
Factors That Affect Your Borrowing Capacity
Increases Capacity
- Higher base salary
- Regular overtime or commission history (2+ years)
- Rental income from existing properties
- Joint application with a partner
- Fewer dependents
- No existing debts (loans, credit cards)
- Larger deposit (lower LVR = lower rate)
- Clean credit history (no defaults)
Decreases Capacity
- Existing personal or car loans
- Credit cards (even with $0 balance)
- HECS/HELP debt
- Buy now, pay later accounts
- Multiple dependents
- High declared living expenses
- Short employment history (< 6 months)
- Self-employed with irregular income
Estimated Borrowing Capacity by Income
The table below provides indicative borrowing capacity estimates for a single applicant with no dependents, no existing debts (including no credit cards or HECS/HELP), and a 30-year P&I loan at a 6.0% assessment rate (plus 3% buffer = 9.0% for serviceability).
| Gross Annual Salary | Estimated Borrowing Capacity | Monthly Repayment (at 6.0%) |
|---|---|---|
| $80,000 | ~$450,000 | $2,698 |
| $100,000 | ~$570,000 | $3,417 |
| $120,000 | ~$690,000 | $4,137 |
| $150,000 | ~$870,000 | $5,216 |
| $200,000 | ~$1,170,000 | $7,015 |
These are estimates only and will vary by lender. Assumes single applicant, no dependents, no existing debts, standard living expenses (HEM benchmark), and a 30-year P&I loan. Actual capacity may be higher or lower.
Couples vs Single Applicants
Applying as a couple generally increases borrowing capacity because two incomes are assessed. However, it is not simply double a single person's capacity — shared living expenses are higher than for a single person, and both parties' debts are included.
| Scenario | Combined Income | Estimated Capacity |
|---|---|---|
| Single — $100,000 | $100,000 | ~$570,000 |
| Couple — $100K + $80K | $180,000 | ~$1,050,000 |
| Couple — $100K + $100K | $200,000 | ~$1,170,000 |
| Couple — $100K + $100K + 2 dependents | $200,000 | ~$1,020,000 |
Estimates assume no existing debts and standard living expenses. Adding dependents increases the HEM (Household Expenditure Measure) benchmark, reducing borrowing capacity by approximately $50,000-$80,000 per dependent.
Tips to Increase Your Borrowing Power
- 1.Cancel unused credit cards. Each $10,000 credit limit reduces your borrowing capacity by $30,000-$50,000, even if the balance is zero. Cancel cards you do not need at least 3 months before applying.
- 2.Pay off HECS/HELP if close to the threshold. If your HECS/HELP balance is small and you can clear it, removing the compulsory repayment from the bank's calculation can add tens of thousands to your capacity.
- 3.Close buy now, pay later accounts. Banks treat BNPL as a liability. Close all accounts (Afterpay, Zip, etc.) well before applying.
- 4.Reduce living expenses. Banks look at your last 3-6 months of bank statements. Reducing discretionary spending (subscriptions, dining, entertainment) before applying can lower your assessed living expenses.
- 5.Consolidate debts. If you have multiple personal loans or car loans, consolidating them into one lower-repayment loan can improve your serviceability assessment.
- 6.Extend the loan term. A 30-year term results in lower assessed monthly repayments compared to a 25-year term, which increases the amount you can borrow.
- 7.Shop around. Different lenders have different calculators and expense benchmarks. A mortgage broker can identify which lender will give you the highest borrowing capacity based on your specific circumstances.
Common Mistakes That Reduce Borrowing Capacity
Forgetting about credit card limits
Many applicants forget that banks assess the full credit limit, not just the current balance. A card with a $15,000 limit and $0 balance still reduces your capacity by $45,000-$75,000.
Applying too close to a job change
Banks prefer applicants who have been in their current role for at least 6 months (12 months for self-employed). Starting a new job right before applying can delay approval or reduce the amount offered.
Not declaring all income
If you receive regular bonuses, overtime, or rental income, make sure it is documented and included in your application. Banks can only count income they can verify through payslips, tax returns, or bank statements.
Multiple credit enquiries
Each loan application generates a credit enquiry on your file. Too many enquiries in a short period can signal financial stress to lenders. Limit applications and use a broker who can shop around with a single enquiry.
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