The short answer
Your borrowing power depends on your income, your living expenses, your existing debts and the interest rate the lender tests you at. Lenders add a buffer of at least 3 percentage points to the actual rate to check you could cope if rates rise. Two people with the same salary can get very different results depending on their debts and spending.
How do lenders calculate borrowing power?
Lenders work out how much income you have left each month after tax, living expenses and existing commitments. They then check whether that surplus can cover repayments on the new loan at their assessment rate, which is higher than the rate you will actually pay.
Living expenses are taken as the higher of what you declare and a benchmark for your household size. Not all income is counted in full: lenders often discount bonuses, overtime, commission and rental income.
What is the serviceability buffer?
The Australian Prudential Regulation Authority (APRA) expects banks to test whether you could still afford the loan if the interest rate were at least 3 percentage points higher than the rate you are offered. So on a 6% loan, your repayments are assessed as if the rate were 9% or more. This buffer is the main reason borrowing power falls when rates rise.
What reduces how much I can borrow?
Common borrowing power killers:
- Credit card limits. Lenders count a share of the limit as a monthly cost even if you pay it off in full
- Buy now pay later accounts and personal or car loans
- HECS-HELP or other study debts, which reduce your take-home pay
- Dependants, which increase the expense benchmark
- High discretionary spending in your recent bank statements
How can I increase my borrowing power?
Close or reduce unused credit card limits, pay down small debts, and keep your spending steady in the months before you apply. A larger deposit also helps, as it reduces the loan size and may avoid LMI. Different lenders treat income and expenses differently, so comparing lenders can make a real difference to the figure.
Frequently asked questions
No. A calculator gives an estimate. Each lender uses its own expense benchmarks, income rules and assessment rate. A broker can check your figures against actual lender policies.
Not necessarily. The maximum is what a lender will allow, not what is comfortable. Think about your buffer for rate rises, a change in income, or a growing family.
Sources
Related
General information only. It does not take into account your objectives, financial situation or needs. Lender criteria vary and approval is at the lender's discretion. Homestead is a mortgage broker, not a lender. Last updated 2026-11-04.