Borrowing Power Calculator

Banks assess your borrowing power by looking at your total income (including partner and other income), living expenses, existing debt commitments, credit card limits, and the number of dependants. They calculate your net surplus income after expenses and use that to determine the maximum loan repayment you can afford. The loan amount is then derived using the assessment interest rate and your chosen loan term.

The buffer rate is an additional margin (currently 3%) that banks add on top of the actual loan interest rate when assessing your ability to repay. For example, if the loan rate is 6%, the bank assesses you at 9%. This ensures you can still afford repayments if interest rates rise. The buffer rate is set by APRA (Australian Prudential Regulation Authority) and is a key reason your borrowing power may be lower than expected.

HEM (Household Expenditure Measure) is a benchmark used by lenders to estimate your minimum living expenses based on your household size and income. If your declared expenses are lower than the HEM benchmark, the bank will use the HEM figure instead. This means even if you are frugal, there is a minimum expense amount the bank will factor in, which can reduce your maximum borrowing amount.

You can increase your borrowing power by: reducing or closing unused credit cards (limits are assessed as commitments even if unused), paying off existing debts like car loans or personal loans, increasing your income or adding a co-borrower, reducing your declared living expenses, choosing a longer loan term, or saving a larger deposit. Even small reductions in monthly commitments can significantly increase how much you can borrow.