Australian Home Loan Borrowing Power Calculator

Australian lenders (Commonwealth Bank, Westpac, NAB, ANZ, and others) assess your borrowing capacity using standardized criteria set by APRA (Australian Prudential Regulation Authority) to ensure you can comfortably afford your home loan repayments, even if interest rates rise.

Key Factors Australian Lenders Consider:

• Income: Gross salary (before tax), plus rental income, investment income, and bonuses. For couples, both incomes are combined when applying jointly.
• HEM (Household Expenditure Measure): Banks use the higher of your declared expenses or HEM, which is a benchmark for minimum living costs based on household size. Different for singles vs couples with dependents.
• Existing Commitments: All loan repayments (car loans, personal loans, HECS-HELP), and credit card limits are assessed at ~3% of limit per month, even if you pay in full each month.
• APRA Serviceability Buffer: Banks must assess at least 3% above your actual interest rate (the assessment rate) to ensure you can still afford repayments if rates increase.
• Dependents: Number of children or dependents increases the HEM benchmark for your household.
• Employment Type: Permanent employment is viewed more favourably than casual or contract work.

Understanding LVR and LMI:

• LVR (Loan to Value Ratio): The loan amount as a percentage of the property value. E.g., borrowing $400k for a $500k property = 80% LVR.
• LMI (Lenders Mortgage Insurance): Required when LVR exceeds 80%. This is a one-off premium (typically $10k-$30k+) that protects the lender, not you. Can often be added to the loan.
• Ideal LVR: Aim for 80% or less to avoid LMI. A 20% deposit saves thousands in insurance costs.

Tips to Increase Your Borrowing Power:

• Reduce or cancel unused credit cards - Even if you pay them off monthly, limits reduce borrowing capacity
• Pay off debts - Clear personal loans, car loans, and HECS-HELP where possible before applying
• Reduce expenses - Lower your discretionary spending 3-6 months before applying
• Apply as a couple - Joint applications combine both incomes (but also combine debts)
• Save a larger deposit - Reduces LVR, avoids LMI, and shows savings discipline to lenders
• Improve credit score - Pay bills on time, avoid payday loans, and check your credit report
• Use a mortgage broker - They can compare 30+ lenders and find the best deal for your situation