Borrowing power calculator

How it is worked out

Take-home pay and other income, less living expenses and existing repayments, leaves a monthly surplus. The calculator asks what loan that surplus could repay over the term, not at your rate but at your rate plus the assessment buffer lenders apply. The higher figure uses the whole surplus; the lower keeps 20% of it spare, a more cautious reading.

A worked example

One applicant takes home $6,500 / month, spends $3,200 on living costs and pays $350 / month on a car loan, leaving $2,950. Tested at 9.5% (a 6.5% rate plus the buffer) over 30 years, that surplus could repay about $350,834; keeping 20% of it spare, about $280,667. Repayments on $350,834 at 6.5% would be about $2,218 / month. With $80,000 saved and a home in Queensland to live in, stamp duty of $4,022 at the home concession rate and $3,000 of other costs leave $72,978 for the deposit, so about $364,892 to buy with a loan of $291,914. The mortgage repayment calculator works the repayments on any loan and term.

Questions

Why does my bank's calculator give a different figure?

Banks start from gross income, apply their own tax and expense models, and use the higher of your stated expenses and a household benchmark. This calculator uses your take-home pay and the expenses you enter, and gives a range rather than one figure, so the two can differ either way.

Does a credit card limit count?

Lenders usually count a share of each card's limit every month, whatever the balance. Your lender can tell you the share they use; add it to existing repayments.

What is the difference between borrowing power and what I could buy?

Borrowing power is the loan. What you could buy adds your savings and takes away what the purchase costs before you own it: stamp duty for the state, registration and conveyancing, and the insurance premium when the deposit is under 20% of the price. A $600,000 loan and $150,000 saved do not buy a $750,000 home once duty is paid.

How can I borrow more?

Lower outgoings raise the surplus a lender tests: paying down or closing cards and loans, trimming living costs, or adding a second applicant's income. A larger deposit does not change the loan a lender offers, but it does raise the price you could pay and can avoid the insurance premium.

What is lenders mortgage insurance?

A one-off premium a lender charges when the deposit is under 20% of the price. It protects the lender, not the buyer, and is usually added to the loan. The figure here is indicative; the lender's insurer sets the premium.

What are the upfront costs?

Stamp duty is the largest, set by the state and reduced or removed for many first home buyers. Then registration of the transfer and the mortgage with the state's land registry, the conveyancer or solicitor who settles the purchase, and any building and pest inspections before you commit.