Understanding Borrowing Power — A Complete Guide
How lenders assess capacity: income, expenses, debts, buffers, rate, term and policy settings — with calculator.
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Overview
Borrowing capacity is the amount a lender will allow you to borrow based on your income, verified living expenses, existing debts/limits and the lender’s risk policy. Lenders apply assessment buffers to the interest rate and use minimum expense benchmarks, so your borrowing power is typically lower than what a basic repayment estimate suggests. This guide explains the key inputs, how buffers work, and practical ways to improve capacity responsibly (without inflating risk), then links to a calculator to estimate your own ceiling.
Core inputs lenders consider
- Gross and net income (salary, rental, other)\
- Declared living expenses and verified statements\
- Existing debts/limits (credit cards, personal loans, HECS/Student loans)\
- Assessment rate and buffers (lenders test higher than the actual rate)\
- Loan term and repayment type
Improving capacity (responsibly)
- Reduce discretionary expenses and close unused credit limits.\
- Consolidate expensive debts where appropriate.\
- Consider a longer term (note total interest trade‑off).
Estimate capacity with the Borrowing Power Calculator.
Sources
- ASIC Moneysmart — Can you afford a home loan?: https://moneysmart.gov.au
- APRA — Serviceability buffers (media/standards): https://www.apra.gov.au
Frequently asked questions
Does a higher credit limit reduce capacity?
Yes. Unused credit card limits are counted as potential debt and can reduce borrowing power.
Will a longer loan term increase capacity?
Usually yes, by lowering repayments used in assessment — but it increases total interest across the loan life.
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