Borrowing Capacity Calculator Australia 2025-26
Find out how much a lender would actually approve you for.
Estimate Australian borrowing capacity with income, expenses, dependants, existing debts, APRA buffer rates, LVR context, and AUD lender assumptions.
Australia Borrowing Capacity Notes
Australian lenders assess PAYG, self-employed, rental, and investment income differently, then shade the result for tax, living expenses, dependants, credit-card limits, and existing repayments.
A lender serviceability buffer can make the assessed rate meaningfully higher than the advertised home-loan rate, which is why borrowing power may feel lower than the repayment calculator suggests.
This version keeps Australian LVR, deposit, stamp-duty, HECS or HELP, and household-expenditure language visible so the page reads like an Australian pre-approval estimate.
Use the result as a planning range before checking a lender policy, broker assessment, or formal pre-approval.
Australian version note: this borrowing capacity keeps the calculation anchored to AUD amounts, local product names, Australian tax language, and the way banks, employers, agencies, or advisers usually describe the inputs.
Local cues stay visible where they matter: ATO, PAYG, superannuation, Medicare levy, stamp duty, kilometres, comparison rate, APRA, Centrelink, GST, and Australian-dollar results are not rewritten into overseas vocabulary.
Use the output as an Australian estimate first, then sanity-check it against local quotes, lender criteria, government thresholds, state rules, or professional advice before relying on the number.
Estimates only — lenders apply their own credit policies. Enter your details below for a personalised figure.
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Select the question that matches where you are right now.
Your borrowing capacity is the maximum loan a lender may consider serviceable based on your inputs — not a guaranteed approval, and not automatically a safe budget. Lenders estimate your net income after tax, subtract living expenses (using a minimum benchmark called HEM), deduct all debt commitments, then check whether the remaining monthly surplus can cover repayments at a stressed rate: your actual rate plus APRA's 3% buffer.
Use it to check whether your target purchase price is realistic. If the result is within 10–20% of what you need, formal pre-approval with a lender or broker will give you a precise figure based on your actual credit file.
Not a formal approval, not a credit assessment, and not the total amount you need to buy. Deposit, stamp duty, legal fees, and moving costs sit outside this number — typically 4–6% on top of the purchase price.
Each lender uses different HEM multipliers, income shading rules, DTI caps, and credit scorecards. Two major banks assessing the same borrower can produce results that differ by $80,000–$150,000. This calculator uses standard APRA methodology as a neutral baseline.
If your result is lower than expected, it's almost always one of four things — not the interest rate. The rate matters far less than most borrowers expect once you account for these committed expenses.
Lenders assume 3% of your total credit limit as a monthly commitment, regardless of what you owe. A $15,000 combined limit adds $450/month to assessed expenses — equivalent to losing roughly $55,000–$65,000 in borrowing power. Closing unused cards before applying is the fastest lever most borrowers have.
Once income exceeds $54,435, the ATO deducts compulsory HECS repayments. Lenders treat this as a fixed commitment. On $95,000 with $40,000 in HECS debt, the repayment is ~$4,750/year or $396/month — reducing borrowing capacity by roughly $55,000–$70,000.
These are deducted dollar-for-dollar from monthly surplus. A $600/month car loan reduces maximum borrowing by ~$75,000–$90,000. Paying off short-term debt before applying is often more effective than increasing income by the same dollar amount.
HEM rises significantly with dependants. A couple with two children will have a HEM of approximately $4,200–$4,800/month depending on income bracket, versus $2,900–$3,200 for a childless couple. Even if you declare lower expenses, most lenders apply HEM if it's higher than what you state — and as of 2025, many lenders apply 110–130% of standard HEM as an additional floor.
Deposit size doesn't change your borrowing capacity calculation — but it determines whether the purchase structure actually works. Many borrowers are deposit-bound rather than serviceability-bound. The same loan approval looks completely different at 10% vs 20% deposit.
Borrowing at 80% LVR or below means no Lenders Mortgage Insurance. On a $700,000 property, a 20% deposit is $140,000 and you borrow $560,000. No LMI, lower ongoing rate at most lenders, and a stronger negotiating position. Most borrowers target this threshold.
Borrowing above 80% LVR triggers LMI — a one-off premium that protects the lender, not you. On a $700,000 property with a 10% deposit ($70,000), LMI typically adds $10,000–$20,000 to the loan. This increases total cost without increasing your borrowing limit.
Eligible first home buyers may access the First Home Guarantee (FHBG), allowing purchase with a 5% deposit without LMI. The government guarantees the difference. Income caps and property price limits apply. Check NHFIC for current eligibility rules before relying on this pathway.
Income is the most visible driver, but it's the net monthly surplus — what's left after tax, living costs, and existing debt — that determines the ceiling. Two borrowers on identical gross salaries can have borrowing capacities that differ by $100,000 or more.
After tax, Medicare, HEM-level expenses, and the 3% buffer, this range typically supports $380k–$550k depending on debt profile. Even modest HECS or a single credit card can shift the result by $50k–$80k. This is the most common first-home-buyer range.
Returns taper as DTI caps (6x gross) begin to bind. The jump from $100k to $150k income produces a proportionally smaller improvement than most borrowers expect. At this level, deposit size and card limits typically become the binding constraints rather than raw income.
Adding a second income typically produces a large improvement, but the gain is offset by combined living costs, shared dependants, and combined debt profiles. A couple on $160k combined generally borrows materially more than a single borrower on $80k — but lenders assess both credit profiles fully.
Overtime, bonuses, and commissions are typically shaded to 80% because lenders treat them as less reliable. Rental income is also shaded to 80% (75% at some lenders) to account for vacancy and maintenance. Self-employed borrowers face the most conservative treatment: lenders generally use the lower of the last two years' net taxable income and require two full years of tax returns. Consistent, growing income helps; declining income results in the lower figure being used.
The borrowing formula is national, but what your result means depends entirely on where you want to buy. The same $700,000 approval feels very different in Parramatta versus Port Adelaide.
In Greater Sydney, median house prices in most established suburbs exceed $1.2m–$1.5m. A $700k result typically requires a strong deposit to reach those price points. Many first buyers focus on outer western suburbs, Central Coast, or apartments in middle-ring areas. NSW stamp duty adds 3–4% on properties above $1m. First home buyers may access stamp duty concessions for properties under $800k.
Melbourne has a wider spread between inner and outer suburbs than Sydney. A $700k result accesses established homes in many middle and outer suburbs. VIC stamp duty is relatively high — budget 4–5% on a typical purchase. First home buyers may qualify for the FHOG on new builds or the FHBG to reduce LMI exposure on established homes.
These markets offer more options at a given borrowing level. Brisbane and Adelaide in particular have seen strong relative value at the $500k–$800k range compared to Sydney. Perth has experienced sharp price growth recently. Stamp duty rates in QLD, WA, and SA are generally more favourable than NSW and VIC for equivalent property values.
If the result is below your target, these are the highest-leverage moves — roughly in order of impact per dollar or effort required.
Closing a $10,000 card limit can add $35,000–$50,000 to your borrowing capacity. Do this at least 3 months before applying so the closure reflects in your credit report. If you need a card, reduce the limit to the minimum you actually use — the effect is nearly identical to closing it.
A $400/month car loan reduces maximum borrowing by roughly $50,000–$65,000. Personal loans, BNPL arrangements, and store credit all have similar effects. If you're within 6–12 payments of clearing a debt, finishing it before applying often produces a better result than keeping the cash as a slightly larger deposit.
Even a modest second income of $40,000–$60,000 typically produces a more significant uplift than most single-income improvements. Combined applications are assessed on both incomes, both debts, and combined household costs — but the net effect is almost always positive unless one applicant has significant debt.
HEM floors, income shading rules, and DTI caps vary significantly between major banks, regional banks, and non-bank lenders. A broker can model your profile across multiple lenders simultaneously. The difference between the best and worst policy fit for a specific situation can exceed $100,000 in approved loan amount.
Borrowing capacity answers one question. These are the ones that usually follow, depending on your stage.
Knowing your maximum loan is useful, but you also need to check whether the monthly repayment is comfortable at different rates. A small rate movement on a large loan is a meaningful monthly dollar change.
Mortgage repayment calculator →Once you have a target property price, model the full upfront costs: stamp duty, legal fees, building inspection, and conveyancing. These often add 3–5% to the total cash required at settlement on top of the deposit.
Stamp duty calculator →If you're still building your deposit, calculate how long it will take at your current savings rate. Adjusting the target property price or adding a savings boost shows a realistic path to entry.
Savings goal calculator →Keeping cash in an offset account reduces the interest charged on your loan without reducing the loan balance itself. The interest savings over 10–20 years can be substantial.
Offset savings calculator →How borrowing capacity is calculated in Australia
Your borrowing capacity — also called borrowing power, serviceability, or home loan eligibility — is the maximum loan amount an Australian lender will approve based on your income, declared expenses, existing debts, and the bank's internal credit policy. The exact figure varies between lenders because each applies different versions of the same methodology, but all authorised deposit-taking institutions must follow APRA's minimum serviceability standards.
Step 1: Gross income assessment
Lenders start with your gross income before tax. Not all income types are counted equally. PAYG salary from a permanent role is assessed at 100%. Overtime, bonuses, and commissions are typically shaded to 80% because they're considered less reliable. Rental income is assessed at 80% to account for vacancy and maintenance. Casual and contract income typically requires 12 months of history and may be assessed at 80%. Self-employed income is assessed at the lower of the last two years' net taxable income — if year one was $80k and year two was $100k, many lenders will use $80k.
Step 2: Net income after tax and Medicare
Lenders convert your gross assessable income to net income by deducting estimated income tax and the 2% Medicare levy. For a $95,000 gross salary in 2025-26, net income is approximately $71,000 per year or $5,917 per month. HECS/HELP compulsory repayments are also deducted at this stage if you have an active debt above the $54,435 threshold.
Step 3: Living expenses — HEM benchmark
The Household Expenditure Measure (HEM) is an ABS-derived minimum living expense benchmark. Lenders use the higher of your declared monthly expenses or the HEM for your household type and income bracket. HEM varies from approximately $1,900/month for a single person on a modest income up to $5,000+/month for a high-income family with several dependants. As of 2025, many major lenders apply 110–130% of the standard HEM figure, further reducing assessed capacity.
Step 4: Existing debt commitments
All existing monthly debt commitments are subtracted from your income. This includes actual loan repayments (car loans, personal loans, investment property mortgages), 3% of your total credit card limits per month regardless of balance, and BNPL commitments. A credit card with a $15,000 limit creates a $450/month assessed commitment — even if the balance is zero and you pay it off each month.
Step 5: Monthly surplus
The remaining figure after subtracting living expenses and debt commitments from net monthly income is your monthly surplus. This surplus is what you have available to service a new home loan repayment. A borrower on $95,000 gross with $2,500 in declared expenses, no existing debts, and active HECS might have a monthly surplus of approximately $2,800–$3,200 depending on exact inputs.
Step 6: APRA serviceability buffer and assessment rate
Since October 2021, APRA requires all authorised deposit-taking institutions to test mortgage applicants at their actual product rate plus a minimum 3% buffer. If a lender quotes a variable rate of 6.20%, all repayments are assessed as if the rate were 9.20%. This dramatically reduces borrowing capacity compared to pre-2021 methodology and is specifically designed to protect borrowers who may experience rate rises after settlement. Non-bank lenders are not subject to APRA's buffer requirement, though most apply their own stress testing.
Step 7: Maximum loan calculation
The maximum loan is the present value of an annuity where the monthly payment equals your surplus, the interest rate is the assessment rate divided by 12, and the term is your chosen loan term in months. At a 9.2% assessment rate over 30 years, a $3,000/month surplus produces a maximum loan of approximately $370,000. At a 9.2% rate over 25 years, the same surplus produces approximately $335,000 — illustrating why loan term is a meaningful lever.
Step 8: Debt-to-income ratio cap
Most major Australian lenders now apply a hard DTI cap of 6x to 7x gross annual income, regardless of what the surplus calculation produces. If your gross income is $120,000, a 6x DTI cap limits your maximum loan to $720,000 — even if your surplus analysis suggests you can service more. APRA monitors DTI distribution across the industry and can tighten these limits as a macroprudential tool, as it did with the serviceability buffer in 2021.
Borrowing capacity examples by income and situation — 2025-26
These planning-level ranges are calculated using standard APRA methodology with 2025-26 ATO tax rates. Actual lender results vary by 10–20% depending on which institution you approach and their specific policies. Use the calculator above for your exact inputs.
Single borrower examples
| Income | Debts / commitments | Typical range | Key constraint |
|---|---|---|---|
| $60,000 | No debts, no HECS | $240k–$310k | HEM floor takes large share of net income at this salary |
| $80,000 | No debts, no HECS | $380k–$470k | Clean profile — HEM, tax, and buffer are main constraints |
| $80,000 | $20k HECS debt active | $330k–$420k | Compulsory HECS repayment ~$800/yr reduces surplus |
| $100,000 | No debts, no HECS | $500k–$600k | The most commonly searched benchmark — clean profile |
| $100,000 | $15k credit card limit | $440k–$540k | Card adds $450/mo assessed expense despite zero balance |
| $100,000 | $40k HECS, no other debts | $440k–$530k | HECS repayment ~$4,750/yr = ~$60k less borrowing capacity |
| $100,000 | $500/mo car loan | $430k–$510k | Car loan deducted dollar-for-dollar from monthly surplus |
| $120,000 | No debts, no HECS | $620k–$740k | DTI cap (6x) not yet binding — serviceability is the constraint |
| $120,000 | $15k card + $40k HECS | $510k–$610k | Combined drag from cards and HECS is ~$110k in capacity |
| $150,000 | No debts, no HECS | $780k–$900k | DTI cap (6x) may bind at some lenders — $900k = 6x gross |
| $200,000 | Low debts | $980k–$1.2m | DTI cap binds — $1.2m = 6x gross at $200k income |
Couple and joint application examples
| Combined income | Situation | Typical range | Key note |
|---|---|---|---|
| $120k combined ($60k+$60k) | No dependants, no debts | $580k–$700k | Combined HEM higher than two singles but lower than with children |
| $140k combined ($80k+$60k) | No dependants, no debts | $700k–$840k | Strong serviceability — deposit likely to be the binding constraint |
| $160k combined ($100k+$60k) | 1 child, moderate debts | $760k–$920k | Child adds ~$500/mo to HEM; debts reduce surplus further |
| $160k combined | 2 children, no other debts | $680k–$820k | Two children raise HEM significantly vs no-children scenario |
| $200k combined ($120k+$80k) | No children, low debts | $970k–$1.2m | High serviceability — DTI cap (6x = $1.2m) is the binding constraint |
| $250k combined | Low debts | $1.2m–$1.5m | DTI cap universally applies — multiple lenders needed for best rate |
How loan term affects borrowing capacity
| Income | Loan term | Typical range | Difference vs 30yr |
|---|---|---|---|
| $100,000 | 30 years | ~$500–600k | Baseline |
| $100,000 | 25 years | ~$445–535k | ~$55–65k less |
| $100,000 | 20 years | ~$380–455k | ~$120–145k less |
Extending the loan term to 30 years reduces each monthly repayment at the assessment rate, allowing a larger loan. The trade-off is more total interest paid over the loan life — but extra repayments can always reduce this after settlement.
How different income types are assessed — PAYG, self-employed, rental, casual
PAYG permanent employment
Base salary from a permanent role is the most straightforward income type. Counted at 100% of the gross figure shown on payslips. Most lenders require 2–3 recent payslips and a letter of employment confirming the role is permanent. Probationary periods are sometimes an issue — some lenders require you to have completed probation before applying.
Overtime, bonuses, and commissions
Regular overtime and bonuses that have been consistent for at least 12 months are typically accepted at 80%. If you receive irregular bonuses (one-off annual performance bonuses), some lenders accept 80% of the average over two years. Commission income generally requires 2 years of tax returns to demonstrate consistency. Variable income that has declined between years is assessed at the lower figure.
Self-employed income
This is the most variable and often the most constrained income type. Lenders use the lower of the last two financial years' net taxable income from your tax returns. If you earned $85k in year one and $110k in year two, many lenders will use $85k. Some specialist lenders use the average, which can produce a better result. Low-doc loans for self-employed borrowers require at least 12–24 months of ABN registration and may attract higher rates or require larger deposits.
Rental income
Rental income from existing investment properties is assessed at 80% of gross rental income (75% at some lenders). This 20–25% haircut accounts for vacancy, maintenance, property management fees, and council rates. Negative gearing is taken into account — if your existing investment loan repayment exceeds your rental income, the shortfall is treated as an additional monthly commitment. Use the rental income field in Detailed mode to include this in your calculation.
Casual and contract income
Casual employees typically need 12 months with the same employer to have income considered, assessed at 80%. Some lenders require 12 months at any employer in the same industry. Fixed-term contracts are generally acceptable if there's evidence of contract renewal history. Zero-hours or irregular casual work is the most difficult to have counted — without consistent history it may not be included at all.
Government benefits and Family Tax Benefit
Some government payments are accepted by some lenders. Family Tax Benefit A and B are accepted by many lenders, typically at 100% of the confirmed amount. Centrelink payments like Newstart (JobSeeker) or Disability Support Pension may be accepted by specialist lenders. Child support payments received may be accepted at 100% with 12 months of demonstrated receipts — child support obligations paid are counted as monthly commitments in full.
Income from multiple employers
Multiple sources of employment income are simply added together, with each source assessed according to its type. A borrower with a $70,000 primary salary and $30,000 from a second casual role might have $70,000 assessed at 100% and $24,000 (80% of $30,000) from the casual income, giving $94,000 in total assessable income.
Side hustle and freelance income
Income from side businesses, freelancing, ride-share driving, delivery work, or any ABN-registered activity is treated as self-employed income. Most lenders require at least 2 full financial years of tax returns showing this income to count it in their assessment. If you have been operating the ABN for less than 2 years, most major banks will not include this income at all. Some specialist lenders will accept 12 months of ABN income with an accountant's letter, but these are typically non-bank lenders. If your primary income is PAYG employment, the side income may still be excluded unless it can be demonstrated as consistent and sustainable.
ABN registered less than 2 years
This is one of the most commonly asked questions for newer self-employed borrowers. If your ABN was registered less than 2 years ago, major lenders typically will not count your business income for serviceability purposes — even if you are earning well. Options include: waiting until you have 2 full years of tax returns; applying through a non-bank or specialist lender who accepts 12 months of ABN income; applying jointly with a PAYG-employed partner whose income alone may support the loan; or seeking a low-doc loan product (which typically requires a 20–40% deposit and carries higher rates).
Salary sacrifice and salary packaging
Salary sacrifice (including for vehicles, superannuation, or hospital employees receiving FBT-exempt benefits) affects how lenders assess your income. Lenders use your pre-salary-sacrifice gross income for assessment purposes — not your reduced take-home pay. However, the sacrificed amount still reduces your taxable income, which affects the income tax deduction in the serviceability calculation. For hospital, healthcare, and charity workers who receive up to $9,010 (or $15,900 for FBT-exempt employers) in tax-free salary packaging, lenders generally add the packaging amount back into gross income for assessment — resulting in slightly better capacity than pure salary workers at the same cash take-home pay.
Foreign income and overseas employment
Foreign-sourced income (from overseas employers paid in a foreign currency) is typically assessed at 80% of the AUD equivalent after currency conversion, to account for exchange rate risk. Some lenders require additional verification such as a letter from the overseas employer, recent payslips in both foreign currency and AUD, and evidence of regular transfers to an Australian account. Temporary visa holders may face additional LVR restrictions and will typically need Foreign Investment Review Board (FIRB) approval to purchase residential property. Citizens and permanent residents working overseas on Australian PAYG arrangements are generally assessed the same as domestic earners.
How much can I borrow on different salaries — $60k to $250k
These figures represent clean-profile estimates — no existing debts, no HECS, no dependants, declared expenses at HEM, 30-year loan term, 6.2% interest rate. Adding real-world commitments will reduce the figures. Use the calculator above for your specific inputs.
How much can I borrow on $60,000 income?
On a $60,000 gross salary with a clean profile (no debts, no HECS, no dependants), the typical borrowing capacity range is $240,000–$310,000. Net income after tax is approximately $49,500/year or $4,125/month. After HEM expenses (~$2,033/month for a single person) and the 3% buffer, the monthly surplus available for repayments is roughly $2,000. At a 9.2% assessment rate over 30 years, this produces a maximum loan of approximately $240,000–$280,000.
How much can I borrow on $70,000 income?
On $70,000 gross with a clean profile, the typical range is $300,000–$380,000. After tax ($13,717 + Medicare), net income is approximately $54,700/year or $4,558/month. With HEM expenses of around $2,100–$2,200/month for a single person at this income level, the surplus is approximately $2,350/month, supporting approximately $280,000–$340,000 at 9.2% assessment rate.
How much can I borrow on $80,000 income?
On $80,000 gross with a clean profile, the typical range is $380,000–$470,000. This is the most common entry-level salary range for first home buyers. Net income is approximately $61,300/year or $5,108/month. After HEM expenses of approximately $2,100–$2,300/month, the monthly surplus supports a maximum loan of $370,000–$450,000 at 9.2% assessment rate over 30 years.
How much can I borrow on $90,000 income?
On $90,000 gross with a clean profile, the typical range is $440,000–$540,000. Net income is approximately $68,700/year or $5,725/month. After HEM expenses and the buffer, the surplus of approximately $3,300/month supports a maximum loan in the $400,000–$500,000 range at 9.2% assessment rate. Adding HECS debt at this income level would reduce the result by roughly $45,000–$60,000.
How much can I borrow on $100,000 income?
On $100,000 gross with a clean profile, the typical range is $500,000–$600,000. This is the most frequently searched borrowing capacity benchmark in Australia. Net income is approximately $73,600/year or $6,133/month. After HEM expenses (~$2,200–$2,400/month), the monthly surplus of approximately $3,700 supports a maximum loan of $440,000–$530,000 at a 9.2% assessment rate over 30 years. Adding a $40,000 HECS debt at this income reduces the result by approximately $55,000–$70,000.
How much can I borrow on $120,000 income?
On $120,000 gross with a clean profile, the typical range is $620,000–$740,000. Net income is approximately $86,100/year or $7,175/month. After HEM expenses, the monthly surplus of approximately $4,700 supports a maximum loan of $565,000–$675,000 at 9.2% assessment rate. At this income, card limits and existing debts become proportionally more significant — a $20,000 card limit reduces capacity by approximately $60,000–$75,000.
How much can I borrow on $150,000 income?
On $150,000 gross with a clean profile, the typical range is $780,000–$900,000. Net income is approximately $103,000/year or $8,583/month. After HEM expenses, the monthly surplus of approximately $6,200 supports a maximum loan of $750,000–$870,000 at 9.2% assessment rate. At some lenders, the 6x DTI cap begins to bind at this income — 6x $150,000 = $900,000, which constrains the upper end of the range.
How much can I borrow on $200,000 income?
On $200,000 gross with a clean profile, the typical range is $980,000–$1,200,000. The 6x DTI cap ($1.2m) is the binding constraint for most lenders rather than serviceability. Net income is approximately $128,000/year or $10,667/month. After HEM expenses, the monthly surplus strongly supports the loan — but lender policy rather than pure serviceability limits the result. Some lenders apply a 7x DTI cap, which would allow up to $1.4m in principle.
How much can I borrow on $250,000 income?
On $250,000 gross with a clean profile, DTI caps universally apply. At 6x gross income, the maximum is $1.5m; at 7x it's $1.75m. Different lenders have different policies at this income level, and specialist lenders or private credit facilities may apply different constraints. Serviceability is not typically the binding constraint at this income — lender policy, deposit size, and property valuation are usually the limiting factors.
How much can two people borrow together?
A couple applying jointly with $80,000 + $60,000 = $140,000 combined income typically borrows $700,000–$840,000 with no debts and no dependants. The combination of two incomes significantly exceeds what either borrower could achieve alone. However, combined HEM is higher than a single-person HEM, and both credit profiles are fully assessed. Adding one child typically reduces the joint result by $70,000–$100,000 due to increased HEM assumptions.
What reduces borrowing capacity — HECS, credit cards, loans, dependants
HECS/HELP debt and home loan borrowing power
HECS/HELP debt is one of the most commonly overlooked factors affecting borrowing capacity. The ATO begins collecting compulsory repayments once your income exceeds $54,435 (2025-26 threshold). Repayment rates range from 1% at the lowest bracket to 10% for incomes above $130,000. These repayments are deducted directly from your wages through the PAYG system and cannot be avoided.
Lenders treat HECS repayments as a fixed monthly commitment and subtract them from your usable income. On a $95,000 salary with an active HECS debt, the annual compulsory repayment is approximately $4,750 — about $396/month. This reduces the monthly surplus available for mortgage repayments, decreasing maximum borrowing capacity by approximately $55,000–$70,000 at standard assessment rates.
If you have a small remaining HECS balance (under $15,000–$20,000) and the financial capacity to pay it out, this is worth modelling. Paying out $15,000 in HECS could increase your borrowing capacity by $40,000–$60,000 — a significant return on the paydown. Use the HECS field in Detailed mode to compare scenarios with and without the debt.
Credit cards and borrowing power
Credit card limits have an outsized effect on borrowing capacity relative to their apparent cost. Lenders assume 3% of your total credit card limit as a monthly commitment — not 3% of the balance. This reflects the risk that you could max out the card at any time.
Impact examples: a $10,000 credit limit reduces borrowing capacity by approximately $35,000–$45,000. A $20,000 combined limit reduces capacity by approximately $70,000–$90,000. A $30,000 combined limit (common for people with two or three cards) reduces capacity by approximately $105,000–$135,000. These figures assume a 9.2% assessment rate over 30 years.
Actions to take: close cards you don't use, reduce limits on cards you keep, and do this at least 3 months before applying for pre-approval. The closure needs time to reflect in your credit file.
Car loans and personal loans
Monthly repayments on car loans, personal loans, and hire purchase arrangements are subtracted dollar-for-dollar from your monthly surplus. A $600/month car loan payment effectively removes $600 from the income available to service a home loan — reducing borrowing capacity by approximately $75,000–$90,000 at standard assessment rates.
If you have a car loan with 12 months remaining and manageable outstanding balance, paying it out before applying is often worthwhile. The increase in borrowing capacity typically exceeds the interest saved by clearing the loan early. Use the existing loans field in Standard mode to model this comparison.
BNPL — Afterpay, Zip, and other services
Buy Now Pay Later services are increasingly captured in lender serviceability assessments. BNPL balances may appear in your credit file from comprehensive credit reporting, and regular BNPL payments in bank statements are treated as recurring commitments. Even small BNPL arrangements that seem inconsequential can show up as multiple credit enquiries and add to your total assessed monthly commitments. Clearing and closing BNPL accounts before applying is a prudent step.
Dependants and household size
Each dependant increases the HEM benchmark used to assess your minimum living expenses. A single person on $80,000 might have a HEM of approximately $2,100/month. A couple with two children on the same income might have a HEM of approximately $4,000–$4,500/month — more than double. HEM rises with both the number of dependants and your income level.
Two dependent children can reduce borrowing capacity by $80,000–$130,000 compared to an otherwise identical couple with no children. This is not a reason to delay family formation, but it is important context for timing property purchases relative to family plans.
How to increase your borrowing capacity before applying
6–12 months before applying
Cancel unused credit cards. Every $10,000 in card limits removed can add $35,000–$50,000 to borrowing capacity. If you need a card, reduce the limit to the minimum required. Allow 3 months for changes to appear in your credit file.
Pay off short-term debt. Car loans, personal loans, and BNPL are deducted from surplus dollar-for-dollar. Prioritise clearing debts that are close to paid off. A $15,000 remaining car loan at $500/month could be worth paying out if it increases your borrowing capacity by $65,000.
Consolidate or close BNPL accounts. Multiple BNPL services leave multiple enquiries on your credit file. Close what you're not actively using.
3–6 months before applying
Build a clean transaction history. Lenders examine 3–6 months of bank statements for gambling transactions, unexplained large transfers, consistent overdrafts, and irregular spending. Regular savings demonstrated over this period also strengthens your application.
Run a pre-assessment with a broker. A mortgage broker can model your profile across multiple lenders simultaneously. Given that the difference between lenders can be $80,000–$150,000 for the same borrower, this is worth doing before committing to a specific bank.
Structural moves that improve the result
Add a joint applicant. Even a modest second income of $40,000–$60,000 typically produces a substantial uplift. Combined applications are assessed on both incomes and both debts — but the net effect is almost always positive unless one applicant has very high existing debt.
Extend the loan term to 30 years. A longer term reduces the monthly repayment at the assessment rate, increasing the principal you can borrow. The trade-off is more total interest — but extra repayments can always reduce this after settlement. Choosing a 30-year term doesn't commit you to 30 years of standard repayments.
Consider non-bank lenders. Non-bank lenders are not subject to APRA's buffer requirement and may apply different income assessment policies. For specific borrower profiles — particularly self-employed applicants, investors, or those with recent employment changes — non-bank lenders can sometimes offer meaningfully higher approved amounts.
Model different lender floor rates. Some lenders apply minimum assessment floor rates (commonly 5.5%–6.0%) regardless of the actual product rate. In a falling-rate environment, a lender without a restrictive floor rate can produce a better serviceability result. Use Advanced mode to model different floor rate scenarios.
Income improvements that help
Increasing income is the most direct path to higher borrowing capacity, but it also takes the most time to achieve and demonstrate. A pay rise needs to be reflected in at least one payslip to be counted. A new higher-paying job may require 3 months of payslips to verify permanency. Self-employed income needs 2 full financial years of higher earnings to fully benefit the assessment.
For borrowers timing an income increase with a property purchase, getting formal pre-approval at current income and then updating with the new income once confirmed is a common approach. Most pre-approvals are valid for 90 days and can often be extended or reassessed.
LVR bands and how they affect your rate
Your Loan-to-Value Ratio (LVR) — the loan amount as a percentage of the property value — affects both what you can borrow and the interest rate you'll pay. Most lenders price loans in LVR bands: below 60%, 60–70%, 70–80%, 80–90%, and above 90%. Borrowers at 80% LVR or below avoid LMI entirely. Moving from 85% LVR to 80% LVR typically saves 0.1–0.3% on the interest rate (a "rate discount") in addition to eliminating the LMI premium. On a $700,000 loan over 30 years, a 0.2% rate saving amounts to approximately $30,000–$40,000 in total interest. Saving an extra $35,000 in deposit to cross the 80% LVR threshold often provides a strong financial return.
Offset account vs redraw — which builds more capacity?
For borrowers who already have a mortgage and are looking to maximise equity for a future purchase, offset accounts and redraw facilities both reduce the effective interest paid. An offset account keeps money accessible while reducing the interest charged on the loan balance daily. A redraw facility reduces the loan balance directly (and therefore shows a lower outstanding balance to a lender assessing you for a second loan). For borrowers planning to use equity to fund a future investment property purchase, keeping funds in redraw (reducing the PPOR loan balance) is generally better — the lower PPOR balance means less of the monthly income is committed to existing loan repayments, improving serviceability for the new loan.
Refinancing to increase borrowing capacity
Refinancing an existing mortgage at a lower rate, or extending the remaining term, can free up monthly cash flow and improve your serviceability for a new purchase. If you refinance a 20-year remaining term back to 30 years, the monthly repayment falls significantly — this reduced commitment appears in your serviceability assessment as a lower existing debt burden. The trade-off is more total interest over the life of the extended loan. Used strategically before an investment property purchase, refinancing-to-extend can meaningfully increase your assessed maximum borrowing for the new loan.
APRA serviceability rules, DTI caps, and what banks actually test
The APRA 3% serviceability buffer
APRA Prudential Practice Guide APG 223 requires all authorised deposit-taking institutions (ADIs) to assess borrowers at the higher of: their actual loan rate plus 3%, or a minimum floor rate of 5.5% (though many lenders now use higher floors). This buffer was reduced from 3% to 2.5% during COVID and then raised back to 3% in October 2021 as APRA sought to moderate rapid house price growth. APRA has the authority to adjust this buffer and has signalled it may reduce it once inflation and rate pressures ease.
Debt-to-income monitoring
APRA monitors the proportion of new lending at high DTI ratios (above 6x gross income) across the industry as a macroprudential measure. Individual banks set their own DTI limits — most major lenders use 6x to 7x — but APRA can impose industry-wide limits if it determines the share of high-DTI lending poses systemic risk. In practice, this means borrowers near or above 6x gross income will find fewer lenders willing to approve their loan and may face higher rates or stricter conditions.
What lenders actually test beyond the buffer
The APRA buffer is the minimum standard, but individual lenders layer additional tests on top. These include: HEM multipliers (many lenders use 110–130% of standard HEM), income shading (some lenders shade primary income for certain employment types), minimum living expense floors regardless of declared expenses, maximum loan-to-income ratios, and internal credit score overlays that may restrict amounts even when serviceability is technically met. This is why two lenders can show materially different results for identical inputs.
Responsible lending obligations
Lenders also have obligations under the National Consumer Credit Protection Act (NCCP Act) to assess whether a loan is "not unsuitable" for the borrower. This includes assessing whether the borrower can repay without substantial hardship. Following the Banking Royal Commission, lenders substantially increased the scrutiny applied to declared expenses — bank statements are now typically examined for 3–6 months, and undeclared subscriptions, regular transfers, and discretionary spending patterns are commonly identified and factored in.
First home buyer borrowing capacity — grants, guarantees, and deposit schemes
First Home Guarantee (FHBG)
The First Home Guarantee (formerly FHLDS) allows eligible first home buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance. The government guarantees up to 15% of the purchase price, meaning you effectively borrow at 95% LVR with an LMI-free facility. The guarantee does not increase your borrowing capacity — you still need to demonstrate you can service the full loan at the assessment rate. Income caps apply: $125,000/year for singles, $200,000/year for couples (2025-26 figures). Property price caps vary by location — $900,000 in Sydney, $800,000 in Melbourne, lower in other markets.
First Home Owner Grant (FHOG)
The FHOG is a state-administered one-off grant for first home buyers purchasing new or substantially renovated homes. The grant amount varies by state: $10,000 in NSW and VIC for new builds, $30,000 in QLD and WA (for limited periods), and varying amounts in SA, TAS, NT, and ACT. The grant does not directly increase your borrowing capacity but does contribute to your total deposit/savings, potentially helping you reach the minimum required deposit threshold without borrowing more.
First home buyer stamp duty concessions
Most states offer stamp duty concessions or exemptions for first home buyers on properties below certain price thresholds. In NSW, first home buyers pay no stamp duty on existing homes up to $800,000 and receive a concession up to $1,000,000. In VIC, no duty applies on homes up to $600,000 with a concession up to $750,000 for first home buyers. These concessions significantly reduce the upfront cash requirement, effectively allowing a larger proportion of savings to go toward the deposit rather than transaction costs.
First home buyer borrowing capacity considerations
First home buyers often have the most constrained borrowing capacity profiles due to: lower income levels early in careers, active HECS/HELP debts from university, limited deposit requiring a higher LVR, and shorter employment history making some income types harder to verify. The combination of HECS debt and a credit card limit (even partially used) can reduce borrowing capacity by $100,000–$150,000 compared to an otherwise equivalent profile without these commitments. Addressing these before applying is the most effective preparation strategy.
First Home Super Saver Scheme (FHSS)
The First Home Super Saver Scheme allows first home buyers to make voluntary concessional (pre-tax) contributions to superannuation and then withdraw them — plus associated earnings — to use as a home deposit. Up to $15,000 per financial year can be contributed (to a maximum of $50,000 total across all years). Withdrawals are taxed at your marginal rate minus a 30% offset, making them significantly more tax-effective than saving outside super for most people. Importantly, FHSS contributions do not increase your borrowing capacity directly — they accelerate deposit accumulation. You must apply to the ATO for a FHSS determination before signing a contract or transfer document.
Using crypto or non-standard assets as a deposit
Most lenders do not accept cryptocurrency directly as evidence of savings. If you hold crypto assets you intend to liquidate for a deposit, you will need to convert to AUD and hold in a bank account for at least 3 months before applying, so that it appears as genuine savings in your bank statements. Lenders look for a consistent savings history — a large unexplained deposit from a single transfer (even from crypto sale proceeds) may trigger additional scrutiny and requests for evidence of the source of funds.
Investment property borrowing capacity — rental income, negative gearing, and cross-collateralisation
How rental income affects borrowing capacity
Rental income from existing investment properties is assessed at 80% of gross rent (75% at some lenders). If you receive $26,000/year in rental income, lenders will count approximately $20,800–$21,840 toward your assessable income. The 20–25% haircut accounts for vacancy periods, property management fees, maintenance costs, council rates, and insurance. The rental income field in Detailed mode uses 80% shading by default, which can be adjusted in Advanced mode.
Negative gearing and borrowing capacity
If your investment property is negatively geared — meaning the rental income is less than the loan repayments and running costs — the shortfall is treated as an additional monthly commitment that reduces your overall borrowing capacity for a new purchase. A property generating $1,800/month in rent with $2,400/month in repayments creates a $600/month assessed shortfall. This effectively reduces your maximum loan on a new purchase by approximately $75,000–$90,000 at standard assessment rates.
Cross-collateralisation and existing mortgages
If you own investment properties with existing mortgages, those loan repayments are counted as monthly commitments in full, regardless of rental income. The existing loans field in Standard mode allows you to enter the combined monthly repayments across all existing investment loans. On a $600,000 investment loan at 6.5%, the monthly repayment is approximately $3,800 — this reduces your maximum new-purchase borrowing by roughly $470,000 at 9.2% assessment rate. Portfolio lenders sometimes apply alternative assessment methods, which is another reason to compare across multiple institutions through a broker.
Investors and DTI caps
Property investors accumulating multiple mortgages are particularly affected by DTI caps. Total debt (including all investment loans) divided by gross income is assessed against the lender's DTI limit. An investor with $1.5m in existing investment mortgages and $150,000 gross income is already at 10x DTI — well above most lenders' 6–7x limits. This is why investors often need specialist lenders, higher income, or to demonstrate strong positive cash flow across the portfolio to continue acquiring properties.
PPOR vs investment property — how lenders treat the difference
Your principal place of residence (PPOR) and investment properties are assessed differently by lenders. PPOR loans typically attract lower rates and more favourable LVR treatment (up to 95% with LMI). Investment property loans typically have a maximum LVR of 80–90% with LMI, and interest rates are usually 0.2–0.6% higher than equivalent PPOR loans. If you are purchasing an investment property while renting (no PPOR mortgage), your rental payments are not treated as a housing expense for serviceability — but some lenders may apply a notional rent expense to account for the risk that you might purchase a PPOR in future and be servicing both simultaneously.
Negative equity and borrowing again
Negative equity occurs when your outstanding loan balance exceeds the current market value of your property. In a declining market, this can prevent refinancing (lenders won't take on a loan that exceeds the security value) and can affect your ability to borrow for a second property. If your existing property has declined in value and your LVR has risen above 80%, you may need to demonstrate equity elsewhere or wait for values to recover before accessing further credit. This is a key reason why buying at a high LVR in a volatile market carries additional risk beyond the standard repayment burden.
How borrowing capacity differs between major banks and non-bank lenders
Why the same borrower gets different amounts from different lenders
Australian lenders all follow APRA's minimum standards but apply their own overlays. The key sources of variation are: (1) HEM multipliers — some lenders use 120% or 130% of standard HEM, significantly raising the assessed expense floor; (2) income shading rates — some lenders shade bonuses to 60% rather than 80%; (3) DTI caps — some use 6x, others 7x; (4) assessment floor rates — some apply a minimum 5.5% assessment rate even if product rates are lower; (5) credit score overlays — internal risk models may restrict approved amounts even when serviceability is met.
Major bank approach
The four major banks — Commonwealth Bank (CBA), ANZ, National Australia Bank (NAB), and Westpac — typically apply the most conservative HEM benchmarks and income shading policies, reflecting their compliance obligations and risk appetite. They also have the most sophisticated credit scoring systems, which can work in favour of borrowers with very strong profiles but against those with any irregularities. Major banks are APRA-supervised and must comply with all macroprudential requirements.
Smaller banks and credit unions
Smaller ADIs — regional banks, credit unions, mutual banks — often use more flexible HEM benchmarks and may have less stringent income shading policies for specific income types (particularly self-employed). Some regional banks have stronger relationships with specific industries or employment types, which can produce better outcomes for borrowers in those categories. They are still APRA-supervised and must comply with the buffer requirement.
Non-bank lenders
Non-bank lenders — including Pepper Money, La Trobe Financial, Liberty Financial, Resimac, and Firstmac — are not ADIs and are not subject to APRA's regulatory framework, including the 3% serviceability buffer. Most apply their own stress testing, but at lower effective rates than the APRA floor. This can produce meaningfully higher approved amounts for the same borrower. Non-bank lenders are typically best suited to borrowers who face specific constraints with traditional lenders — self-employed with complex financials, recently started businesses, adverse credit history, or unusual income structures. Rates are usually 0.3–0.8% higher than major bank rates to reflect the additional risk.
The value of mortgage broker comparison
A mortgage broker with access to multiple lenders can model your profile against the full market simultaneously. Given that the difference between the best and worst policy fit for a specific borrower can be $80,000–$150,000 in approved amount — and potentially 0.5–1.0% in interest rate — this comparison has significant financial value. Brokers are paid by lenders (via trail commission) rather than the borrower in most cases, though this structure means it's worth confirming you're being shown options from the full panel rather than a preferred subset.
Online lenders and digital mortgage platforms
Digital-first lenders including uBank, Athena Home Loans, Tic:Toc, and Nano offer highly streamlined application experiences and often competitive rates — particularly for borrowers with clean, straightforward profiles. Their borrowing capacity assessments typically use standard APRA methodology (being ADIs or funded by ADIs), so the approved amount is similar to a traditional lender for the same inputs. The primary advantage is speed and cost — lower overheads allow sharper pricing. For complex situations (self-employed, multiple income sources, adverse credit) traditional lenders or specialist non-banks generally offer more flexible assessment policies than fully automated online platforms.
Home loan pre-approval — what it is, how to get it, and how long it lasts
What is pre-approval?
Pre-approval (also called conditional approval or approval in principle) is a lender's written confirmation that they would be prepared to lend you up to a specified amount, subject to final verification. It confirms your borrowing capacity has been assessed against your income, expenses, and debts, and gives you a realistic budget for property searching. Pre-approval is not a guarantee of final approval — the lender still needs to assess the specific property you buy (via valuation) and reconfirm your financial position at the time of purchase.
How to get pre-approval
Most lenders offer pre-approval online, through a branch, or via a mortgage broker. You'll need to provide: recent payslips (2–3), your last two tax returns if self-employed, bank statements (3–6 months), evidence of savings for deposit, identification documents, and details of existing debts and credit cards. The lender will run a credit check as part of the assessment, which appears on your credit file. Multiple credit enquiries within a short period can slightly reduce your credit score, so avoid applying to many lenders simultaneously — use a broker to compare without multiple enquiries.
How long does pre-approval last?
Most pre-approvals are valid for 90 days. After 90 days, you typically need to request an extension or reapply. Your financial position is reassessed at renewal, so changes to income, new debts, or interest rate movements can affect the renewed amount. If you haven't found a property within 90 days, renewing early — before expiry — is generally smoother than lapsing and restarting. Some lenders offer 6-month pre-approvals for borrowers with complex situations.
Pre-approval vs formal approval
Pre-approval lets you bid at auction or make an offer with confidence. Formal (unconditional) approval is issued once the lender has assessed the specific property, received a satisfactory valuation, and completed final credit checks. Settlement typically occurs 30–90 days after exchange. At this stage, your financial position must still match what was assessed at pre-approval — major changes (job loss, new car loan, large credit card balance) between pre-approval and settlement can jeopardise formal approval.
Using this calculator for pre-approval preparation
The figure from this calculator gives you a strong indication of your pre-approval range. To maximise your formal pre-approval amount: close unused credit cards 3 months before applying, pay down short-term debts, maintain consistent savings, and avoid taking on new financial commitments. Run the Advanced mode on this calculator to model different lender buffer rates — some non-bank lenders assess at lower effective rates, producing higher pre-approval limits for the same income.
Fixed vs variable rate — how your rate type affects borrowing capacity
Does a fixed rate increase borrowing capacity?
In general, no — and in some cases a fixed rate can reduce your assessed capacity. APRA requires lenders to assess your ability to repay at the higher of: your actual product rate plus 3%, or a minimum floor rate (typically 5.5–6.0%). Because fixed rates are often quoted similarly to or slightly below variable rates, the assessment rate used is essentially the same. What changes is certainty, not capacity.
The 2-year rule for fixed rate assessment
Some lenders use the revert variable rate (the rate your loan switches to after the fixed period ends) as the base for assessment rather than the current fixed rate. If your 2-year fixed rate is 5.8% but the revert variable is 6.5%, the lender may assess you at 6.5% + 3% buffer = 9.5% — which reduces borrowing capacity compared to being assessed at 5.8% + 3% = 8.8%. This varies by lender, so it's worth confirming the assessment methodology before choosing a fixed rate product specifically for borrowing capacity reasons.
Split loans — part fixed, part variable
A split loan divides your borrowing into a fixed component (rate certainty on part of the loan) and a variable component (flexibility for extra repayments on the remainder). Most lenders assess split loans using a blended effective rate across both portions. The borrowing capacity impact is usually minimal versus a fully variable loan at the same overall rate.
Rate movements and future capacity
If the RBA cuts rates, variable rate borrowers benefit immediately — and APRA's buffer means assessed capacity rises even faster. A 1% rate cut (e.g., from 6.2% to 5.2%) changes the assessment rate from 9.2% to 8.2%, which typically increases borrowing capacity by $40,000–$70,000 on a $100,000 income. Fixed rate borrowers don't see this benefit during their fixed period. When comparing loan products, use the Advanced mode on this calculator to model the impact of different assessment rates on your maximum loan.
Guarantor home loans Australia — how they work and who qualifies
What is a guarantor home loan?
A guarantor home loan allows a parent or immediate family member (the guarantor) to use equity in their own property as additional security for your loan. This allows you to borrow up to 100% of the purchase price (or even include stamp duty and costs) without a traditional deposit, and typically without paying Lenders Mortgage Insurance. The guarantor doesn't provide cash — they put their property up as security, meaning the lender can call on that property if you default and your property's value doesn't cover the debt.
How guarantor loans affect borrowing capacity
The guarantor arrangement addresses the deposit constraint rather than the serviceability constraint. Your maximum loan is still determined by your income, expenses, and debt — the borrowing capacity calculation shown in this calculator still applies. What changes is the deposit requirement: instead of needing a 10–20% deposit, your guarantor's equity substitutes for some or all of it. You still need to demonstrate you can service the full repayment yourself.
Limited vs unlimited guarantee
A limited (or family) guarantee restricts the guarantor's exposure to a specific dollar amount — typically the amount required to bring the loan-to-value ratio to 80% (removing LMI). Once the loan balance falls below 80% LVR through repayments or property price growth, the guarantee can be released. An unlimited guarantee exposes the guarantor to the full loan amount and is now uncommon. Always insist on a limited guarantee and seek independent legal advice before proceeding.
Who qualifies as a guarantor?
Most lenders accept parents or step-parents as guarantors. Some accept siblings or grandparents. The guarantor must own property in Australia with sufficient equity (typically at least 20% of its value free of debt) and must meet the lender's own borrower criteria — they typically cannot have adverse credit history. The guarantor should seek independent financial and legal advice before signing, as their property is at genuine risk if you cannot meet repayments.
Borrowing on part-time income, parental leave, or returning to work
Part-time income and home loans
Part-time PAYG income is assessed at 100% of the documented rate, provided you have been in the role for at least 3–6 months (most lenders) or 12 months (more conservative lenders). The critical factor is demonstrating the role is permanent part-time, not casual. A permanent part-time employee earning $55,000/year is assessed the same way as a full-time employee on the same income. The borrowing capacity result will be proportionally lower — but the methodology is identical. Use this calculator with your actual part-time income figure for an accurate estimate.
Parental leave — on leave at the time of applying
This is one of the most nuanced income situations. If you are currently on paid parental leave (employer-provided or government PPL), lenders typically assess your borrowing capacity at your return-to-work salary, not your current parental leave payment. You'll need a letter from your employer confirming: your pre-leave salary, your scheduled return-to-work date, and that your role is being held for you. Some lenders require you to have already returned to work before approving. If both applicants are on parental leave simultaneously, most lenders will not proceed until at least one has returned.
Returning to work after parental leave
Once you have returned to work, lenders typically require 3 months of payslips at your return-to-work salary before assessing it at 100%. During the 3-month period, some lenders will accept a lower shading (80%) with a letter of employment. If you are returning to work part-time, your income will be assessed at the actual part-time rate — which may differ from your full-time pre-leave salary. Plan applications after you have 2–3 months of payslips at your current rate if possible.
Government Paid Parental Leave (PPL)
Government PPL payments (through Services Australia) are generally not accepted as assessable income for home loan purposes by most lenders, as they are temporary. Employer-funded parental leave that continues your salary is treated differently — it is counted as your ongoing salary income, provided there is documented evidence of a return-to-work date and your employment continuity is confirmed.
Borrowing capacity for part-time workers — examples
A permanent part-time nurse working 3 days/week on a pro-rata $52,000 salary with no debts would typically qualify for approximately $195,000–$250,000. A teacher working 4 days/week on $66,000 with no debts would typically qualify for approximately $265,000–$335,000. These can be materially improved with a joint application — a part-time worker paired with a full-time partner typically sees a combined borrowing capacity much stronger than either alone.
Rent vs buy in Australia 2025-26 — when buying makes financial sense
The core financial trade-off
The rent vs buy decision in Australia is primarily a comparison of two costs: the ongoing cost of renting (rent + opportunity cost of the deposit not invested) versus the ongoing cost of owning (mortgage repayments + rates + maintenance + insurance − any capital growth). In most Australian capital city markets, buying is more expensive in the short term but typically superior over a 7–10 year+ horizon, assuming typical historical capital growth rates of 5–7% per annum.
The break-even rule of thumb
A commonly used guideline: if your weekly rent is less than 0.5% of the purchase price per year (i.e., annual rent is less than 2.5% of purchase price), you may be better off renting and investing the equivalent deposit. If your rent is more than 2.5–3% of the purchase price annually, buying likely makes financial sense if you can service the loan. Example: a $700,000 property — if annual rent is under $17,500 ($337/week), renting may be advantageous. If you're paying $500/week ($26,000/year = 3.7% of purchase price), buying is likely the better long-term financial decision.
Non-financial reasons to buy
Security of tenure (landlords can terminate leases), the ability to renovate and personalise, stability for children's schooling, and the psychological benefit of owning your home are significant factors that don't appear in financial comparisons. Many Australians place high value on these benefits regardless of the financial calculus.
What this calculator tells you about the rent vs buy decision
Your borrowing capacity sets the price range you can access. If your maximum loan is $550,000 and you have a $100,000 deposit, your target purchase price is up to $650,000. The monthly repayment at your actual rate (shown in the results above) is your direct comparison to your current monthly rent. If the mortgage repayment is within 20–30% of your current rent, the financial case for buying is typically strong — you are building equity rather than paying a landlord, and the repayment is largely fixed while rents tend to rise with inflation over time.
Construction loans, apartment borrowing, and specific home loan types
Construction loan borrowing capacity
Construction loans are assessed differently from standard home loans. The lender approves the total cost (land + build), but funds are drawn progressively as construction stages are completed. During construction, you typically make interest-only repayments on the drawn-down amount, transitioning to principal and interest once construction is complete. For serviceability purposes, most lenders assess the full end-debt at principal and interest from the outset (not the interest-only construction phase), which produces a similar borrowing capacity to a standard loan. Some lenders apply additional risk overlays for construction, particularly for owner-builder projects.
Can I borrow more for a new build?
In some cases, yes. The First Home Owner Grant (FHOG) applies to new builds in all states, providing a cash contribution that reduces the deposit required. Several state governments offer additional incentives for new construction (e.g., VIC's off-the-plan stamp duty concessions, WA's building bonus grant). These don't directly increase your borrowing capacity but reduce your required cash outlay, allowing a larger portion of savings to go toward the deposit rather than transaction costs.
Apartment and unit borrowing — does it differ?
Borrowing capacity is the same regardless of property type — it's determined by your income and expenses, not what you're buying. However, lenders apply Loan-to-Value Ratio restrictions that effectively constrain apartments more than houses. High-density apartments (buildings over 40 storeys, or studio/1-bedroom apartments under 50sqm in major cities) may be subject to maximum LVR of 70–80% rather than 90–95%, meaning you need a larger deposit for the same purchase price. Serviced apartments and student accommodation are typically assessed at maximum 60–70% LVR and may not be eligible for standard residential lending at all.
Bridging loans
A bridging loan allows you to purchase a new property before selling your existing one. The lender assesses whether you can service both loans simultaneously (peak debt scenario) or whether the sale proceeds will reduce the debt within the agreed bridging period (typically 6–12 months). Bridging loans are assessed on serviceability of the peak debt, which significantly reduces how much you can borrow during the bridging period. They are best used for short gaps between purchase and sale, not as a medium-term financing strategy.
❓ Frequently asked Frequently asked questions
How accurate is this borrowing capacity calculator?
This calculator uses standard APRA-compliant serviceability methodology and produces reliable planning estimates. Actual bank approvals vary by ±10–20% because each lender applies their own HEM multipliers, income shading rules, credit-score overlays, and DTI caps. Use this number to stress-test your price range, understand the key drivers, and identify what to work on before applying. Then get formal pre-approval for a precise figure based on your actual credit file and the lender's specific policy.
How much can I borrow on a $100k salary in Australia?
On a $100,000 gross salary with no debts, no HECS, and no dependants, the typical borrowing capacity range is $500,000–$600,000. This assumes declared expenses near HEM (~$2,200–$2,400/month), a 6.2% interest rate, a 3% APRA buffer, and a 30-year loan term. Adding a $40,000 HECS debt reduces this by approximately $55,000–$70,000. Adding a $15,000 credit card limit reduces this by approximately $55,000–$65,000. Enter your actual details in the calculator above for a personalised figure.
Does Lenders Mortgage Insurance (LMI) increase my borrowing capacity?
No — LMI allows you to borrow above 80% LVR without a 20% deposit, but it doesn't change the maximum loan amount a lender will approve on serviceability grounds. You still need to demonstrate you can afford repayments at the assessed rate. LMI increases your upfront cost and total loan balance; it doesn't increase your approved borrowing limit. The main benefit of LMI is enabling you to buy sooner without a full 20% deposit rather than waiting to save more.
How does HECS/HELP debt affect borrowing capacity?
Compulsory HECS repayments are treated as a fixed monthly commitment and subtracted from your usable income. Repayment rates range from 1% to 10% of gross income once you exceed the $54,435 threshold (2025-26). On $95,000 income with an active HECS debt, the annual repayment is approximately $4,750 or $396/month — reducing borrowing capacity by roughly $55,000–$70,000 at standard assessment rates. If you have a small remaining HECS balance, paying it out before applying may be worth the cost in increased borrowing capacity.
What income counts toward borrowing capacity?
Base PAYG salary from permanent employment is counted at 100%. Regular overtime and bonuses with 12+ months history are typically accepted at 80%. Rental income is assessed at 80% (75% at some lenders). Casual income requires 12 months of history and is typically counted at 80%. Self-employed income is generally the lower of the last two years' net taxable income. Government payments including Family Tax Benefit A and B are accepted by many lenders. Child support payments received may be counted with demonstrated history. Investment dividends may be accepted with evidence of consistent receipts.
Why do different banks offer different borrowing amounts?
Because HEM benchmarks, income shading rates, minimum assessment floor rates, DTI caps, and credit policy all differ between institutions. Major banks tend to be more conservative. Regional banks and non-bank lenders sometimes have more flexible policies for specific borrower profiles. The difference between the most and least favourable lender for a given borrower profile can be $80,000–$150,000 in approved loan amount. A mortgage broker can compare your profile across multiple lenders simultaneously to identify the best fit.
Can I borrow more with an interest-only loan?
Generally no — and in some cases, yes but the assessment is more complex. APRA requires lenders to assess interest-only loans at principal and interest repayments for the remaining loan term after the IO period. On a 30-year loan with a 5-year IO period, the lender assesses repayments at P&I over 25 years — which typically produces a higher monthly payment than a standard 30-year P&I loan from day one. Some lenders assess IO loans at a higher assessment rate as well. The net effect is that IO loans usually produce the same or lower maximum borrowing capacity than equivalent P&I loans.
How does the APRA serviceability buffer work?
APRA requires all authorised deposit-taking institutions to assess all mortgage applications at the higher of: the actual loan rate plus 3%, or a minimum floor rate (commonly 5.5–6.0%). If the quoted rate is 6.2%, the assessment rate is 9.2%. This is the rate used to calculate whether your monthly surplus can cover the repayment — not the rate you actually pay. The buffer was raised from 2.5% to 3.0% in October 2021. APRA can adjust it in either direction — a reduction would materially increase borrowing capacity across the market.
What is the Household Expenditure Measure (HEM)?
HEM is an ABS-derived benchmark for minimum household living expenses used by Australian lenders. It varies by household type (single, couple, with/without children) and income bracket. Even if you declare lower monthly expenses, most lenders will use HEM if it is higher than your declared figure. As of 2025, many major lenders apply 110–130% of standard HEM as their minimum expense floor, further reducing assessed capacity for borrowers who declare modest expenses. A single person in a major city on $80,000 might face a HEM floor of $2,100–$2,400/month regardless of actual spending.
How does a second applicant affect borrowing capacity?
Adding a second applicant typically produces a substantial increase in borrowing capacity, even on a modest second income. The additional income increases the combined surplus, more than offsetting the higher combined HEM. A couple with $100,000 + $60,000 = $160,000 combined income generally borrows significantly more than two separate applications at $80,000 each — because the combined household costs do not double when two people live together. The second applicant's credit profile, debts, and income type are all fully assessed, so the benefit depends on the second applicant's profile being clean.
Is borrowing capacity the same as what I can afford?
No — borrowing capacity is what a lender believes you can service based on their assessment methodology. What you can comfortably afford is a personal financial decision that depends on your lifestyle, savings goals, income security, risk tolerance, and life plans. Many financial advisers suggest keeping total housing costs (mortgage, rates, insurance, maintenance) below 30% of gross income. The lender's maximum is not necessarily a target — it's a ceiling. Many borrowers choose to borrow significantly less than their maximum to maintain financial flexibility.
How long is a borrowing capacity estimate valid?
A calculator estimate like this one is valid until your inputs change. Formal pre-approval from a lender is typically valid for 90 days. During that period, you have a reasonable expectation that the lender will approve the specified loan amount, subject to satisfactory property valuation and final credit checks. Pre-approval can usually be renewed or extended if you haven't purchased within 90 days. Changes to income, debts, or interest rates during the pre-approval period may require reassessment.
Can I get a home loan on part-time income?
Yes — permanent part-time PAYG income is assessed at 100% of the documented rate, provided you have been in the role for at least 3–6 months. The borrowing capacity is proportionally lower than full-time income but calculated the same way. A part-time worker earning $55,000 with no debts typically qualifies for $195,000–$250,000. Adding a full-time joint applicant significantly improves the result.
Can I get a home loan while on parental leave?
Most lenders assess your borrowing capacity at your confirmed return-to-work salary rather than your parental leave payment. You'll need a letter from your employer confirming your pre-leave salary and return date. Some lenders require you to have already returned to work. Once back, 3 months of payslips at your current rate is typically sufficient for a full assessment.
What is a guarantor home loan and how does it help?
A guarantor loan allows a parent or family member to use equity in their own property as additional security. This lets you borrow without a full deposit and typically without paying Lenders Mortgage Insurance. Your borrowing capacity is still determined by your own income and expenses — the guarantor removes the deposit barrier, not the serviceability barrier. The guarantor's property is at risk if you default, so independent legal advice is essential.
Does a fixed rate increase my borrowing capacity?
Generally no. APRA's 3% buffer applies regardless of whether your rate is fixed or variable. Some lenders assess fixed rate loans at the higher revert variable rate (the rate after the fixed period ends), which can actually reduce capacity slightly. If your goal is maximising borrowing capacity, rate type is less important than reducing debts and card limits before applying.
How much do I need to earn to buy a house in Sydney, Melbourne, or Brisbane?
In Sydney, where median house prices in established suburbs often exceed $1.2M–$1.5M, a single borrower typically needs $200,000+ income or a joint application of $150,000+ combined to access most markets. In Melbourne, $120,000–$160,000 combined accesses middle-ring suburbs. In Brisbane, $100,000–$130,000 combined accesses most established suburb markets. These figures assume a 20% deposit is available. First Home Guarantee allows entry with 5% deposit for properties under state price caps.
Which bank lends the most — CBA, ANZ, NAB, or Westpac?
There is no single answer — each bank's approved amount for the same borrower varies by 10–20% due to different HEM multipliers, income shading policies, and DTI caps. Commonwealth Bank and ANZ tend to use more conservative HEM floors. NAB and Westpac have slightly different income treatment for specific employment types. A mortgage broker can run your profile across all four majors plus regional banks and non-bank lenders to identify which gives you the highest approved amount.
Is it better to rent or buy in Australia right now?
If your monthly mortgage repayment (shown in the results above) would be within 20–30% of your current rent, buying is typically the stronger long-term financial decision — you build equity rather than paying a landlord, and your repayment is largely fixed while rents rise with inflation. If the repayment would be more than double your rent, continuing to save while renting may make sense, particularly in Sydney and Melbourne where yields are low relative to prices.
What is the fortnightly repayment on my loan?
Fortnightly repayments are calculated as the monthly repayment multiplied by 12, divided by 26 pay periods per year. This is shown in the results panel above. Making fortnightly rather than monthly repayments effectively means you make the equivalent of 13 monthly payments per year instead of 12, which reduces the total interest paid and shortens the loan term by several years on a standard 30-year mortgage.
What is the First Home Super Saver Scheme (FHSS)?
The FHSS allows first home buyers to make voluntary super contributions (up to $15,000/year, $50,000 total) and withdraw them for a home deposit. Withdrawals are taxed at your marginal rate minus a 30% offset — making saving through super more tax-effective than saving outside it for most people. FHSS doesn't increase your borrowing capacity directly, but accelerates deposit accumulation. Apply to the ATO for a determination before signing any contract.
Can I count my side hustle or freelance income for a home loan?
Only if you have 2 full financial years of tax returns showing this income. If your ABN is less than 2 years old, most major lenders will not include the income at all. Some specialist non-bank lenders accept 12 months of ABN income with an accountant's letter. If your primary employment is PAYG, that income is still assessed regardless of the side income situation.
Does salary sacrifice or salary packaging affect borrowing capacity?
Lenders assess your pre-sacrifice gross income, not your reduced take-home pay. For FBT-exempt employees (hospitals, charities) who receive tax-free salary packaging, lenders generally add the packaged amount back into assessable income — resulting in slightly better capacity than the take-home pay alone would suggest.
What is the difference between an offset account and a redraw facility?
An offset account sits alongside your loan — money in it reduces the interest charged without reducing the loan balance. A redraw facility reduces the loan balance directly. For borrowers planning a future investment property purchase, funds held in redraw (reducing your PPOR balance) typically produce better serviceability on the new loan than the same amount sitting in an offset, because the PPOR repayment commitment appears lower in the lender's assessment.
Can I refinance to increase my borrowing capacity?
Refinancing at a lower rate or extending your remaining loan term reduces your monthly repayment, which reduces your existing debt commitment in a future serviceability assessment. Extending a 20-year remaining term to 30 years can meaningfully improve the capacity calculation for a second property. The trade-off is more total interest — but this strategy is commonly used before investment property purchases.
Where these figures come from
Property and mortgage figures on this page are drawn from the Reserve Bank of Australia (rate data), APRA (serviceability and lending rules), the ATO (CGT and rental rules), and State Revenue Offices (stamp duty).
- Mortgage & variable-rate data — RBA — Lenders' Interest Rates (F6).
- Lending serviceability buffer (3%) — APRA — Prudential Practice Guide APG 223.
- Capital gains tax & main residence — ATO — Capital gains tax.
- Negative gearing & rental income — ATO — Rental properties.
- Stamp duty (NSW example) — Revenue NSW — Transfer duty.
- First Home Owner Grant schemes — FirstHome.gov.au.
Last checked: April 2026. Rates and thresholds are reviewed against the source of record each November, when annual adjustments for the following tax year are published.