Borrowing Power Calculator

The Borrowing Power Calculator estimates the largest home loan you could service on your income after tax, living expenses, and existing debts, using the same assessment-rate buffer lenders apply. Give it the full detail (partner income, debts, dependants, deposit) and it also returns your maximum property price, loan-to-value ratio, the actual repayment at today's rate, and conservative, moderate, and aggressive scenarios.

How It Works

1. Enter your annual income, and optionally a partner's income and other income. Employment type adjusts the income: casual and self-employed income is counted at 80 percent and contractor income at 90 percent, reflecting how lenders shade less certain earnings. Other income is also counted at 80 percent.
2. The calculator applies the Australian resident tax scale to work out net monthly income, then subtracts your commitments: monthly living expenses, car loan and other debt repayments, HECS repayments, AUD 400 per month per dependant, and credit card limits assessed at 3.8 percent of the limit per year. What remains is your maximum monthly payment.
3. It converts that payment into a loan amount using an assessment rate set 3 percentage points above the loan's actual interest rate, the buffer lenders use to check you could still cope if rates rose. The result is rounded down to the nearest thousand.
4. With a deposit entered, it adds the loan and deposit for a maximum property price and computes the LVR, and it builds the three scenarios: conservative uses 85 percent of the payment at half a point above the assessment rate, aggressive uses 105 percent at half a point below.

Formula

$\text{Max monthly payment} = \text{Net monthly income} - \text{Total monthly commitments}$

The loan that payment can service at the assessment rate is the present value of an annuity:

$\text{Borrowing power} = \text{Max monthly payment} \times \frac{1 - (1 + r)^{-n}}{r}$

where r is the assessment rate (entered interest rate plus 3 percent) divided by 12, and n is the loan term in months.

$\text{Maximum property price} = \text{Borrowing power} + \text{Deposit}$

$\text{LVR} = \frac{\text{Borrowing power}}{\text{Maximum property price}} \times 100\%$

Input Parameters

| Parameter | Unit | Realistic range | | --- | --- | --- | | Annual income | AUD per year | 40,000 to 400,000 | | Partner income | AUD per year | 0 to 300,000 | | Monthly living expenses | AUD per month | 1,500 to 8,000 | | Interest rate | percent per year | 4 to 9 | | Loan term | years | 20 to 30 | | Deposit | AUD | 20,000 to 300,000 | | Credit card limits | AUD total limits | 0 to 50,000 | | Dependants | people | 0 to 5 |

Note that the credit card input is your combined limit, not your balance. Lenders assess the limit because you could draw it all tomorrow, and this calculator mirrors that practice.

Worked Example

A full-time employee earns AUD 120,000, has no partner income or existing debts, spends AUD 3,000 a month on living expenses, has saved a AUD 80,000 deposit, and is looking at a 6 percent loan over 30 years.

1. Tax on AUD 120,000 under the resident scale is AUD 29,467, so net monthly income is (120,000 - 29,467) / 12 = AUD 7,544.42.
2. Commitments are just the living expenses, AUD 3,000, leaving a maximum monthly payment of 7,544.42 - 3,000 = AUD 4,544.42.
3. Assessment rate: 6 + 3 = 9 percent, so r = 0.0075 and n = 360. The annuity factor is (1 - 1.0075^-360) / 0.0075 = 124.28.
4. Borrowing power: 4,544.42 x 124.28 = AUD 564,788, rounded down to AUD 564,000.
5. Maximum property price: 564,000 + 80,000 = AUD 644,000, at an LVR of 564,000 / 644,000 = 87.6 percent.
6. The actual repayment on AUD 564,000 at the real 6 percent rate is AUD 3,381.46 per month, comfortably below the assessed payment, which is exactly the safety margin the buffer is meant to create.

Interpreting the Result

The gap between the assessed payment and the actual repayment is the point of the exercise: a lender wants proof you can service the loan at a rate 3 points higher than today's. If the result disappoints, the commitments table shows why. Credit card limits are the most common surprise: a AUD 20,000 limit is assessed as roughly AUD 63 per month and shaves tens of thousands off the loan, so closing unused cards before applying genuinely helps. Dependants at AUD 400 each and car loans bite hard too.

Use the scenarios as a range, not a promise. Conservative suits planning around possible rate rises; aggressive assumes you stretch spending, which is where households get into trouble. If the LVR lands above 80 percent, expect lenders mortgage insurance on top in a real application, which this estimate does not price in.

Choosing the Right Tool

• Use this Borrowing Power Calculator before house hunting, to find the loan ceiling a lender-style assessment supports and the property price it implies with your deposit.
• Use the Mortgage Calculator once you have a specific property price and loan in mind, to get the repayment and full amortization schedule.
• Use the Loan Calculator for car loans, personal loans, and other amortizing credit with a fixed amount rather than a borrowing limit.
• Use the Debt-to-Income Calculator for the simpler ratio test many lenders also apply, comparing total debt payments with gross income.

Limitations

This is a model of a typical Australian lender assessment, not an approval. Real lenders apply their own expense benchmarks (such as the Household Expenditure Measure) when stated expenses look low, verify income documents, check credit history, and value the actual property. The tax scale used is the resident scale built into the calculator and does not include the Medicare levy, tax offsets, or HECS in the income tax step itself; HECS is treated as a separate commitment only if you enter it. Employment shading, the 3 percent buffer, and the credit card assessment factor are representative values that differ between lenders and change over time. The estimate excludes purchase costs such as stamp duty, legal fees, and lenders mortgage insurance.

Questions

Why is my borrowing power lower than the repayment I could afford today?

Because the loan is tested at the assessment rate, 3 points above your actual rate. Your true repayment in the example is AUD 3,381.46 a month, but the lender checks serviceability as if it were AUD 4,544.42, so the approved amount is smaller than today's payment alone would allow.

Do credit cards I never use still reduce my borrowing power?

Yes. Lenders assess the limit, not the balance, and this calculator does the same at 3.8 percent of the limit per year. Reducing or closing limits before you apply is one of the fastest ways to lift the result.

Does a bigger deposit increase borrowing power?

Not directly. The deposit raises your maximum property price and lowers your LVR, but the loan ceiling itself is set by serviceability: income minus commitments at the assessment rate. A bigger deposit buys a more expensive property with the same loan, it does not make the loan bigger.

Sources and Methodology

The assessment design follows Australian lending practice overseen by the Australian Prudential Regulation Authority (APRA), whose guidance expects lenders to test serviceability with an interest rate buffer, modeled here at 3 percentage points, and to assess credit card limits as commitments. Income tax uses the Australian Taxation Office (ATO) resident scale built into the calculator. The loan conversion is the standard present-value-of-annuity formula used for amortizing mortgages everywhere.