How Borrowing Power Is Estimated in Australia
Lenders work out how much you can borrow by starting with your net income, subtracting your living expenses and any existing debt commitments, and testing whether the remaining surplus can cover repayments on the new loan at an assessment rate — your actual rate plus a buffer, currently around 3 percentage points under APRA guidance. This calculator follows the same general approach to give you an indicative estimate.
📋 Key Serviceability Assumptions
| Item | Typical Lender Assumption |
|---|---|
| Serviceability buffer | +3.00% on top of the actual rate |
| Rental/other income recognition | Around 80% of gross amount |
| Credit card assessment | ~3.8% of total limit per year, regardless of balance |
| Living expenses | The higher of your declared expenses or a HEM-style benchmark |
| HECS-HELP debt | Treated as an existing monthly commitment |
| Loan term used for assessment | Typically your actual proposed term |
🔑 Key Terms Explained
Serviceability Buffer: An extra margin added to the actual loan rate when assessing affordability, designed to ensure you could still cover repayments if rates rise after settlement.
HEM (Household Expenditure Measure): A statistical benchmark of typical living costs based on income band, location, and family size, used as a floor for assumed expenses even if your declared spending is lower.
Net Serviceable Income: Your income after tax, minus living expenses and existing debt commitments, available to service a new loan.
Notional Credit Card Repayment: A standard minimum repayment assumption applied to your full credit limit, not your actual balance, since you could draw the full limit at any time.
Debt-to-Income (DTI) Ratio: Total debt divided by gross annual income, another metric some lenders use alongside serviceability to assess overall risk.
💡 Example: $95,000 Single Applicant, No Dependents, $10,000 Credit Card Limit
1. Net annual income after tax and Medicare levy is calculated from the $95,000 gross salary.
2. A HEM-style monthly living expense estimate is deducted, along with a notional credit card commitment of roughly 3.8% of the $10,000 limit per year.
3. The remaining monthly surplus is tested against the loan rate plus the 3% serviceability buffer over the chosen loan term to estimate the maximum loan amount.
Run the calculator above with your own figures to see your personalised borrowing power estimate.
⚠️ Important Notes
— This is a general estimate only and does not reflect any specific lender's actual credit policy or assessment criteria.
— Real lenders consider credit history, employment type, casual/contract income shading, and existing assets, none of which are modelled here.
— HECS-HELP and other government debts should be included in your existing monthly repayments for a more accurate estimate.
— Borrowing power is only one part of loan eligibility — lenders also assess your deposit, LVR, and credit score.
— For an indicative pre-assessment, speak with a licensed mortgage broker or use the ASIC MoneySmart Mortgage Calculator.