Smart ways to calculate your borrowing capacity

Your borrowing capacity is the maximum amount a lender is prepared to lend you based on your income, expenses, existing debts and the lender's assessment criteria.

Lenders use a serviceability calculation that tests whether you can afford the loan repayments at a rate higher than what you'll actually pay. Every lender applies a serviceability buffer of at least 3.0 percentage points above the loan product rate, which means if you're offered a variable rate of 6.2%, the lender assesses your ability to repay at 9.2% or higher. This buffer has been in place since October 2021 and applies to all new borrowers.

How lenders assess your income

Lenders accept different types of income, but not all income is treated equally. Salary and wages from permanent employment are given full weighting. Income from overtime, bonuses, commissions and rental properties may be discounted or averaged over two years. Self-employed borrowers generally need to provide two years of tax returns, and lenders assess net profit after tax and business expenses.

Consider a buyer who earns a base salary of $95,000 with occasional overtime that varies between $8,000 and $15,000 per year. The lender may average the overtime over two years and apply only 80% of that average, which reduces the total assessable income compared to what the buyer might expect. If rental income from an investment property shows a loss after interest and expenses, that loss is deducted from total income rather than added to it, which directly reduces borrowing capacity.

What counts as a committed expense

Lenders deduct your monthly committed expenses from your income before calculating how much you can borrow. Committed expenses include existing loan repayments such as car loans, personal loans and credit cards, along with living expenses.

Credit card limits have an outsized effect. Even if you pay the balance in full each month, lenders assume you could draw the full limit and assess a minimum monthly repayment, typically around 3% of the limit. A credit card with a $20,000 limit can reduce your borrowing capacity by $80,000 to $100,000 depending on the lender, even if the card has a zero balance.

The role of deposit size and LMI

Your deposit affects borrowing capacity indirectly by determining whether you need to pay Lenders Mortgage Insurance. LMI is charged when your loan amount exceeds 80% of the property value and is calculated on a sliding scale. The premium increases sharply at higher LVRs.

For properties in Hope Island, where waterfront and prestige homes make up a significant portion of the market, a 10% deposit on a property at the upper end of the price range can result in an LMI premium of $30,000 to $50,000 or more. Some lenders allow the premium to be capitalised into the loan, which increases the total amount borrowed and may push the LVR higher still. Other lenders require the premium to be paid upfront at settlement. Either way, LMI does not increase the amount you can borrow; it increases the cost of borrowing at a high LVR.

Under the Australian Government 5% Deposit Scheme administered by Housing Australia, eligible first home buyers can purchase with a 5% deposit without paying LMI, provided the property price is within the applicable cap. For Queensland, the cap is $1,000,000 in capital cities and regional centres including the Gold Coast, and $700,000 in other areas. The scheme is available through participating lenders only and cannot be combined with Help to Buy.

Debt-to-income limits and how they apply

From 1 February 2026, all banks and regulated lenders are subject to a limit on the proportion of new loans they can write to borrowers with a debt-to-income ratio of six times or more. Each lender can lend up to 20% of new owner-occupier loans and up to 20% of new investor loans to borrowers in this category.

If your total borrowings, including the new loan, are more than six times your gross annual income, you may still be approved, but the loan will fall within the lender's restricted quota. In practice, this means lenders are more selective about approving high-DTI loans and may require a larger deposit, stronger income documentation, or lower ongoing expenses. Some lenders apply their own internal limits below the six-times threshold.

Using a broker to compare lender policies

Borrowing capacity varies between lenders because each applies different assessment rates, expense benchmarks and income shading policies. One lender may assess your income at full value while another discounts it. One lender may use the Household Expenditure Measure to estimate your living expenses, while another may accept your declared expenses if they exceed the benchmark.

A mortgage broker has access to policy guides and serviceability calculators from a panel of lenders and can identify which lender is likely to offer the highest borrowing capacity for your specific circumstances. This is particularly relevant if you have non-standard income such as shift allowances, contractor income, or income from a business that has been operating for less than two years. Running your scenario through multiple lender calculators before you apply allows you to set a realistic budget and avoid applying to a lender that will decline or offer less than you need.

For buyers in Hope Island, where the market includes a mix of canal-front estates, low-rise apartments and master-planned developments near the marina and shopping precinct, knowing your maximum borrowing capacity before you start looking helps you focus on properties within reach and positions you to move quickly when the right home becomes available.

Improving your borrowing capacity before you apply

If your current borrowing capacity falls short of what you need, there are steps you can take before applying. Paying down or closing credit cards, personal loans and buy-now-pay-later accounts will reduce your committed monthly expenses and lift your serviceability. Consolidating multiple debts into a single loan with a lower total repayment can also help, though the benefit depends on the interest rate and term of the new loan.

Increasing your deposit reduces the loan amount required and may bring you below the 80% LVR threshold, which eliminates the need for LMI. Waiting until a pay rise, bonus or commission payment is reflected in your payslips or tax return can increase your assessable income, particularly if you're self-employed and can show a higher net profit in the most recent financial year.

If you're considering refinancing an existing loan or consolidating debt, timing that transaction before you apply for a new home loan can improve your position, provided the new repayments are lower and the loan structure aligns with your goals.

Call one of our team or book an appointment at a time that works for you. We'll run a full borrowing capacity assessment across multiple lenders, explain how each lender treats your income and expenses, and help you understand what you can borrow before you start looking.

Frequently Asked Questions