Borrowing capacity is determined by a lender's assessment of your ability to service the loan repayments from your income while meeting your other financial commitments. Understanding your estimated borrowing capacity before approaching lenders helps you focus your property search on realistically affordable options.
APRA requires lenders to assess borrower serviceability at a rate at least 3 percentage points above the loan's actual interest rate. This serviceability buffer provides a margin of safety to ensure borrowers can manage repayments if interest rates rise after the loan is drawn down.
Income included in serviceability assessments typically covers base salary, regular overtime and shift allowances, rental income at a reduced rate, and other recurring income sources. Lenders apply different shading factors to non-salary income sources to account for their variability and reliability.
Expenses assessed by lenders include existing debt repayments, declared living expenses, and a benchmark minimum living expense figure. Lenders use the higher of declared expenses and the benchmark to ensure serviceability assessments are realistic.
Borrowing capacity estimates provided are indicative only. Actual borrowing capacity may differ based on the specific lender's policies, your credit history, the property type, and other factors assessed during a formal loan application.