Borrowing Power Calculator

How banks assess your borrowing capacity

Australian banks use a serviceability assessment to determine the maximum loan you can afford. The process works roughly as follows.

1. Gross income. Your total income (wages, salary, rental income, etc.) from all applicants is added together.
2. Net income. An after-tax estimate is calculated. This calculator uses a simple 72% net factor as an approximation.
3. Living expenses (HEM). Banks deduct your living costs. They use the higher of your declared expenses or the HEM benchmark, a minimum expense figure that varies by household size.
4. Existing debts. All existing monthly debt repayments (credit cards, car loans, personal loans, other mortgages) are deducted.
5. Serviceability buffer. APRA requires banks to test your repayment capacity at your actual rate plus 3%. This is why the default assessment rate is 7.5% even when market rates may be lower.
6. Maximum loan. From the remaining surplus, the bank back-calculates the loan amount whose repayments fit within approximately 85 to 90% of that surplus.

The biggest levers on your borrowing power

Income matters most, but a few moves can shift the number meaningfully in either direction.

Credit card limits, not balances

Banks count the full limitof every credit card you hold, not just what you owe. A $20,000 unused card can shave $80,000 to $100,000 off your borrowing capacity. Cancelling cards you don’t use is often the single biggest thing you can do before applying.

Existing debts and HECS

Personal loans, car loans, BNPL accounts and HECS / HELP debt all reduce borrowing capacity. HECS in particular is treated as a recurring expense by every lender, but its impact varies, some lenders are stricter than others. A broker who knows lender policy can often place the same applicant with a lender that takes a softer view.

Living expenses below HEM

If you genuinely live below the HEM benchmark, declaring real (lower) expenses helps, but only if the lender accepts your declaration over the benchmark. Most apply the higher of the two as a floor.

Joint application versus single

Adding a second income usually lifts the cap substantially, but adds another applicant’s expenses and dependants to the calculation too. For couples it almost always helps; for guarantor or family-pledge arrangements the maths gets more complex.

What this calculator doesn’t do

• It doesn’t apply any specific lender’s income-shading policy.
• It doesn’t factor in self-employed income (typically requires 2 years of financials, with policy varying widely).
• It doesn’t model rental income from an investment property (treated differently from salary).
• It doesn’t cover guarantor or family-pledge structures.
• It doesn’t apply LMI or scheme-specific guarantees (FHBG, FHG, Help to Buy).

For any of those, run the basic numbers here, then verify with a broker or a participating lender. Get connected if you want a free intro to one.