Estimate how much you could borrow based on your income, expenses, and existing debts.
Your Details
$30k$500k
$0$500k
$500$10k
$0$5k
$0$5k
$0$50k
5%10%
Estimated Borrowing Power
$0
Based on 30-year loan term
Serviceability Details
Monthly Repayment at Max$0.00
Monthly Surplus Income$0.00
Debt-to-Income Ratio0.0x
Combined Annual Income$85,000
Estimate Only
This is an estimate based on standard lending criteria. Actual borrowing capacity depends on lender assessment, credit history, and additional factors. Interest buffer rates are used by lenders to stress-test your ability to repay if rates rise.
Understanding Borrowing Power in Australia
Borrowing power (also called borrowing capacity or serviceability) is the maximum amount a lender will approve based on your financial situation. Australian lenders assess your income, expenses, existing debts, and apply stress tests to ensure you can afford repayments even if interest rates rise.
Since 2021, APRA (Australian Prudential Regulation Authority) removed the fixed 3% interest rate buffer, allowing each lender to set their own serviceability assessment rate. Most major banks now use a buffer of 2.5-3% above the actual rate. For example, if you're applying at 6% interest, they'll assess your ability to repay at 8.5-9%. This is why borrowing power is often lower than expected.
Credit cards have an outsized impact on borrowing power. Lenders don't care if you pay your card off in full every month - they assess the full limit at 3% monthly minimum repayment. A $30,000 credit limit is treated as $900/month in debt ($10,800 per year), which can reduce your borrowing capacity by $150,000 or more. Close unused cards and reduce limits before applying.
The Household Expenditure Measure (HEM) acts as a floor for living expenses. Even if you declare low expenses, lenders will use HEM minimums (typically $2,000-$3,500/month for singles, more for families). This prevents understating expenses to inflate borrowing power. HEM increases with dependants - each child adds roughly $400-$600/month in assumed costs.
Frequently Asked Questions
How is my borrowing power calculated?
Borrowing power is calculated using your gross income minus expenses, with lenders applying serviceability buffers. Australian lenders typically assess your net income (after tax), subtract all living expenses, existing debts, and credit card limits (usually assessed at 3% of limit per month), then apply a serviceability buffer of 2-3% above the actual interest rate. The surplus income determines your maximum borrowing capacity. Most lenders use the Household Expenditure Measure (HEM) as a minimum baseline for living expenses, which increases based on the number of dependants.
What is an interest rate buffer and why is it used?
An interest rate buffer (also called serviceability rate or assessment rate) is an additional percentage added to the actual interest rate when calculating your borrowing capacity. Lenders typically add 2.5-3% to stress-test your ability to repay if rates rise. For example, if the actual rate is 6%, lenders assess at 8.5-9%. This buffer is mandated by APRA (Australian Prudential Regulation Authority) to ensure borrowers can still afford repayments if interest rates increase. The buffer protects both you and the lender from payment shock.
How can I increase my borrowing power?
There are several strategies to increase borrowing power: 1) Increase your income through salary raises, bonuses, or second jobs. 2) Reduce or pay off existing debts before applying. 3) Lower credit card limits or close unused cards, as lenders assess at 3% of total limits monthly. 4) Reduce declared expenses where realistic. 5) Apply with a partner or guarantor to combine incomes. 6) Consider lenders with lower assessment rates or serviceability buffers. 7) Improve your credit score to access better rates, which increases serviceability. Even small improvements can significantly impact borrowing capacity.
What are my main expenses that reduce borrowing power?
Main expenses that reduce borrowing power include: existing loan repayments (car loans, personal loans, HECS/HELP), credit card limits (assessed at 3% monthly minimum regardless of actual usage), monthly living expenses (groceries, utilities, transport, insurance), rent or current mortgage payments, and number of dependants. Lenders also use the Household Expenditure Measure (HEM), a benchmark for minimum living costs based on family size. If your declared expenses are lower than HEM, lenders will use HEM instead. Some lenders also factor in childcare costs and private school fees.
Why do credit cards reduce borrowing power so much?
Credit cards significantly reduce borrowing power because lenders assess them at their full limit, not your actual usage or balance. Most lenders calculate 3% of your total credit limit as a monthly repayment obligation, regardless of whether you pay it off in full each month. For example, a $20,000 credit card limit is treated as $600 per month in repayments ($7,200 per year), which can reduce your borrowing capacity by $100,000 or more. Closing unused cards or reducing limits before applying can dramatically increase your borrowing power.
What is the Household Expenditure Measure (HEM)?
The Household Expenditure Measure (HEM) is a benchmark for basic living costs developed by the University of Melbourne for lenders. It represents minimum reasonable living expenses for Australian households based on family size, location, and composition. Lenders use HEM as a floor - if your declared expenses are lower than HEM, they will use HEM instead to ensure realistic assessment. HEM covers food, clothing, transport, utilities, healthcare, and recreation, but excludes rent, mortgage, childcare, and private education. HEM typically ranges from $2,000-$4,000+ per month depending on household size.
How does having dependants affect my borrowing power?
Dependants reduce your borrowing power in two ways: 1) They increase your minimum living expenses under the Household Expenditure Measure (HEM), typically adding $400-$600 per child per month in assumed costs. 2) They may trigger additional actual expenses like childcare, school fees, and medical costs that lenders factor in. However, if your partner is also working and contributing income, the combined income may offset the increased expenses. Single-income families with dependants typically have lower borrowing power than dual-income families. Lenders assess dependants differently - some use stricter HEM multipliers than others.
Is this borrowing power estimate the same for all lenders?
No, borrowing power varies significantly between lenders. While all lenders follow APRA guidelines, they differ in: assessment rates (some use 6.5%, others 8%), how they treat rental income (70-80% assessed), treatment of overtime and bonuses (some include 100%, others 80% or exclude it), expense assessment (HEM vs actual), and treatment of PAYG vs self-employed income. Non-bank lenders often have more flexible serviceability. This means you might be approved for $600,000 with one lender and $750,000 with another on the same income. A broker can help find lenders with the best serviceability for your situation.
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