Borrowing Power Calculator Australia 2025-26

How Is Borrowing Power Calculated in Australia?

Australian lenders use a serviceability assessment to determine your maximum borrowing capacity. This calculator follows the same four-step methodology:

1. Apply the Debt Service Ratio (DSR): Lenders cap total debt repayments at a percentage of your gross income, typically 30–35%. This sets the ceiling on all debt combined.
2. Subtract existing commitments: Existing loan repayments, declared living expenses, and 3% of credit card limits are deducted from your debt service capacity.
3. Apply the APRA serviceability buffer: Under APRA's guidance, lenders must test repayability at your contract rate plus 3%. This is the key constraint for most borrowers.
4. Reverse the amortisation formula: The remaining monthly capacity is used in the reverse amortisation formula to calculate the maximum loan principal: P = M × [(1+r)^n − 1] / [r × (1+r)^n] where M = available monthly repayment, r = monthly assessment rate, n = total payments.

The APRA 3% Serviceability Buffer

In November 2021, APRA tightened its prudential guidance (CPG 223), requiring all authorised deposit-taking institutions to assess mortgage applications at the contract rate plus 3%. With rates at 6.5%, that means your application is stress-tested at 9.5%.

The buffer has a large impact on borrowing power. On a $120,000 income, the 3% buffer typically reduces borrowing capacity by $80,000–$120,000 compared to being assessed at the contract rate alone. This is intentional: it ensures borrowers are not overextended if rates rise further after settlement.

Credit Cards and Borrowing Power

This is one of the most overlooked factors in borrowing power calculations. Australian lenders count 3% of your total credit card limits as a recurring monthly commitment; not your actual balance. The logic: you could max out every card the day after settlement.

Approximations based on 6.5% rate, 30-year term, 30% DSR. Actual impact varies by lender.

How to Increase Your Borrowing Power

• Cancel unused credit cards or reduce limits: The fastest way to increase borrowing capacity before applying.
• Pay off personal debt: Eliminating a $500/month car loan can add $50,000–$80,000 to your borrowing power.
• Apply jointly: Adding a second borrower's income significantly increases combined DSR capacity.
• Choose a 30-year term: A longer term produces a lower required monthly repayment at the assessment rate, increasing maximum loan size.
• Compare lenders: Borrowing power estimates can vary by 20–40% across lenders for the same borrower due to different HEM benchmarks, income shading policies, and credit policies. A mortgage broker can identify the most favourable lender for your profile.

Borrowing Power vs Pre-Approval

This calculator gives you a general estimate of your borrowing capacity. A formal mortgage pre-approval is a conditional commitment from a specific lender based on verified income, a full credit check, and a complete application. Pre-approval gives you confidence when making offers or bidding at auction, and typically takes 3–7 business days. Speak with a licensed mortgage broker to get pre-approval before you start seriously searching.

Frequently Asked Questions

How much can I borrow for a home loan in Australia?

Most borrowers can access 4–6 times their gross annual income, but this varies based on expenses, debts and the APRA serviceability buffer. A single borrower on $100,000/year with moderate expenses and no existing debt can typically borrow around $450,000–$600,000 at current rates.

Does borrowing power change when interest rates change?

Yes, significantly. Borrowing power is inversely related to interest rates. When rates rise, the assessment rate (contract rate + 3% buffer) also rises, meaning the maximum loan that produces an affordable repayment is lower. A 0.5% rate rise can reduce borrowing power by $20,000–$50,000 depending on income level.

Do non-bank lenders use the same APRA buffer?

The 3% buffer is an APRA requirement that applies to banks and authorised deposit-taking institutions (ADIs). Non-bank lenders (not ADIs) are not subject to the same APRA requirement and may use a lower buffer or different assessment methodology, which can result in higher borrowing power estimates. This does not make non-bank loans riskier for you as a borrower, but it is worth understanding when comparing lenders.

Is HECS/HELP debt included?

Yes, HECS/HELP repayments are compulsory once your income exceeds the threshold ($54,435 in 2024–25), so lenders treat them as a monthly obligation. Enter your estimated monthly HECS/HELP repayment in the "Existing Monthly Loan Repayments" field to account for this in your estimate.