Borrowing Power Calculator

How lenders actually calculate your borrowing power

Your borrowing power is the maximum loan amount a lender believes you can comfortably repay. It's not a fixed number, it's the output of a serviceability formula every lender runs before approving a cent. The core logic: take your net income after tax (not all income types count equally, overtime, bonuses and rental income are often shaded down before inclusion), subtract your living expenses (the higher of what you declare or the HEM benchmark), subtract existing debt repayments and credit card commitments, then stress-test what's left against a higher assessment rate, not the actual rate you'd pay. What remains gets reverse-calculated into a maximum loan amount, typically over a 30-year term. If you're asking how much house you can afford, this is exactly the same calculation, your borrowing power is the ceiling, and what you can afford to buy is that number plus your deposit, minus purchase costs like stamp duty.

The 2026 HEM benchmarks this calculator uses

HEM, the Household Expenditure Measure, is the Melbourne Institute's benchmark for typical Australian household spending, built from ABS Household Expenditure Survey data. Every APRA-regulated lender uses it as a floor, not a ceiling: if your declared expenses come in below HEM for your household, the lender uses HEM instead. If you declare more than HEM, the lender uses your higher figure. Since the Banking Royal Commission, lenders also review several months of bank statements, so understating your spending doesn't help, they'll find the real number either way.

The exact bank-by-bank tables aren't published, so the figures below are the broker-reported approximations this calculator uses as a starting point:

Each extra dependant adds roughly $630 a month (about $7,560 a year) to the benchmark, whether it's a single-parent or couple household. HEM doesn't include rent, an existing mortgage, council rates or debt repayments, those all get subtracted separately.

The APRA buffer: why the assessment rate is higher than yours

This is the single biggest reason your borrowing power calculator result feels lower than you expected. APRA requires every authorised deposit-taking institution to assess a new home loan at your actual rate plus a minimum 3 percentage point buffer, a floor set in October 2021 and reconfirmed at APRA's macroprudential policy review in May 2026. At the average variable owner-occupier rate of 6.17% reported by ASIC MoneySmart in mid-2026, that means lenders test your repayments at 9.17%, not the rate you'd actually pay day to day. The buffer exists to make sure you could still service the loan through a few rate rises or an unexpected drop in income, which is exactly what this calculator models when it shows an "assessment rate" above whatever you typed in.

The February 2026 debt-to-income cap

There's a second ceiling on top of the serviceability test. From 1 February 2026, APRA limited how much of each lender's new mortgage lending can sit at a debt-to-income ratio of 6 times gross income or above, to no more than 20% of new loans written. In practice, most borrowers won't be approved for a loan above roughly 6 times their gross annual income, even if they'd comfortably pass the serviceability test otherwise. For a single applicant earning $120,000, that's an effective ceiling around $720,000. For most people, the serviceability test above bites first, but on a very high income with modest expenses, this cap can become the real limit.

What actually reduces your borrowing power

Credit card limits are the one that catches people out most. Lenders assess roughly 3.5% of your total credit card limit as a monthly commitment, regardless of your balance or whether you pay it off in full every month. A $15,000 limit you barely touch still gets treated as a $525-a-month obligation. Reducing or cancelling cards you don't use is one of the fastest ways to free up borrowing power, though none of this touches your actual credit score, that's a separate number lenders check alongside serviceability, and it's worth having both sorted before you apply. See our guide to your credit score in Australia for what actually moves that number.

HECS-HELP debt also reduces your capacity, since lenders count the compulsory repayment as a committed monthly expense. Since the 2025-26 income year, that repayment is calculated on a marginal basis rather than a flat percentage of your whole income, so the hit is usually smaller than the old rules would suggest, especially at lower and middle incomes. Some lenders will now disregard a HECS balance entirely if it's close to being paid off. For the full mechanics, including how indexation can grow your balance even while you're repaying it, see how HECS-HELP repayments actually work, or run your own numbers through our HECS repayment calculator.

Dependants raise your HEM benchmark by roughly $630 a month each, which at a typical assessment rate can translate to somewhere in the ballpark of $70,000 to $80,000 less borrowing power per child, depending on your income, loan term and rate. Casual or contract income usually needs a longer track record before a lender will count it in full, and rental or bonus income is commonly shaded down to a percentage of the stated figure rather than counted dollar for dollar.

Why different banks quote different amounts

Run the same numbers through three different lenders and you'll often get three different answers. That's not a bug, it reflects genuine policy differences: which HEM tier a lender defaults to, how much it shades overtime, bonus or rental income, and whether it applies a buffer above APRA's 3 percentage point minimum. The real-world gap between the most generous and most conservative lender for the same household commonly runs to tens of thousands of dollars, sometimes more. That gap is exactly why comparing lenders, or working with a broker who can run your numbers across multiple policies without triggering a separate hard credit check at each one, is worth the extra step rather than taking the first number you're given. Our mortgage broker vs bank guide walks through how that decision actually plays out.

Worked example: HECS and a credit card limit swinging your number by $120,000

Here's the same methodology this calculator uses, run through a real scenario. Our borrower is single, earning $120,000 gross a year, with a $35,000 HECS-HELP balance that isn't close to being paid off, a $15,000 credit card limit they rarely use, no other debts and no dependants, applying for a 30-year loan at a 6.17% variable rate (the average rate ASIC MoneySmart reported in mid-2026).

Now the same borrower makes two changes: they get their credit card limit reduced to $5,000, and pay off the HECS balance completely. New monthly outgoings drop to $2,835 (HEM) plus $175 (3.5% of the smaller card limit), a surplus of $4,580 a month. At the same 9.17% assessment rate, that supports a loan of roughly $560,700, an increase of around $120,000 from the exact same income, with no pay rise and no bigger deposit.

These figures use this calculator's own methodology and are illustrative only. Your real numbers will move with your rate, loan term, and each lender's specific policy, run your own scenario through the calculator above to see it.

5 practical ways to increase your borrowing power

1. 1. Reduce or cancel credit card limits you don't use. At roughly 3.5% of the limit assessed as a monthly cost, a $20,000 limit you never touch can be quietly costing you tens of thousands in borrowing power. Get it reduced or closed a few months before you apply.
2. 2. Chip away at HECS if you're close to clearing it. Some lenders will exclude a HECS balance from serviceability altogether if it's on track to be paid off soon. If you're years away, the maths generally favours investing instead, since HECS carries no interest, only indexation.
3. 3. Avoid new debt in the months before you apply. No new cards, car loans or buy now, pay later accounts. Each one adds a committed repayment and a fresh credit enquiry.
4. 4. Clean up your bank statements. Lenders review several months of transactions, not just your declared budget. Trim discretionary spending and steer clear of gambling transactions, which are a specific red flag for many banks.
5. 5. Shop around, or use a broker. Given how much lender policy varies, the right lender for your situation can be worth tens of thousands more than the first quote you get.