Why is it important to know how much you can borrow?

Whether you’re a first-home buyer or a savvy investor buying your sixth property, finding out how much you can borrow is usually your first step.

RateCity’s Borrowing Calculator is a handy tool to help you work out your property price bracket before you dive into the hunt for your dream property. This tool is based on the personal information you provide.

Once you’ve worked out how much you can realistically borrow and comfortably afford to repay, then you can really start narrowing down your search for the perfect home and the perfect home loan to match.

Borrowing Power Calculator

Estimate how much you can borrow for a home loan in a few simple steps.
  • 1
  • Your situation

    Who is the loan for?

    What is the property for?

    Number of dependents?

  • 2
  • Your earnings

    Your income before tax

    + I have additional sources of income

    e.g. bonus, overtime, dividends

  • 3
  • Your expenses

    Enter manually

    Please enter expenses below. To have your expenses estimated automatically, please switch on.

    My bills and living expenses (monthly)

    + Combined total of credit card limits

    + Current home loan repayments

    + Other loan repayments

    (e.g. car loan, personal loan)

    How does the Borrowing Calculator work?

    The estimate is based on this simple question: what is the largest amount you could afford to repay each month after you pay for your living expenses and other debts. 

    Importantly, the calculator aims to provide a conservative estimate. It does this by adding a 15 per cent buffer into the calculations because a home loan is a long-term commitment, and things will change over time.

    To calculate how much a lender is likely to let you borrow, we:

    • Add up your total assessable income.
    • Work out your total expenses, including loan and credit card repayments.
    • Set aside 15 per cent of your income as a buffer to cover any unforeseen circumstances.
    • Work out how much you’ve got left over. This is how much will go towards your monthly mortgage repayment.
    • Assume your repayments will be based on a 30-year loan and an interest rate of 7.5 per cent. While rates are at historical lows, lenders play it safe and assume they won’t always be. This varies between lenders but 7 to 8 per cent is common so we’ve split the difference.
    • Determine the maximum borrowing capacity (loan size) based on a person who contributes all of their leftover income towards monthly home loan repayments.

    Keep in mind that RateCity’s Borrowing Calculator provides a guide only. Each lender has their own assessment criteria, so there is never a one-size-fits-all answer to the question of how much you can borrow.

    Any advice provided by our calculator is general in nature and has not taken into account your personal circumstances (see our full disclaimer). That’s why it’s important to talk to your preferred lender to check whether you meet their specific serviceability criteria.

    Other things to note

    • All numbers are estimates: It is not a guarantee you’ll be able to borrow a particular amount and is not a pre-qualification for borrowing.
    • Lending criteria can change at any time: This will impact how much you can borrow.
    • Interest rates can change at anytime: The calculator assumes a rate of 7.5 per cent, but you should factor in a higher percentage if you believe rates will increase further in the future.
    • Lenders may consider other factors: The calculator measures loan serviceability, which is only one factor used by lenders when deciding whether to approve a loan. Your credit history, employment details and what property you are buying are some other factors.
    • This is for information purposes only: any advice is general and has not not taken into account your personal circumstances.

    How many people are borrowing?

    This may be obvious but the number of people taking out the home loan can make a world of difference. 

    In some cases, a second person means a second income, so you may be able to borrow more. But on the other hand, if there are two borrowers, the lender will assume your expenses are higher (more on that soon). 

    We also ask you how many kids you have because children cost money. So the more kids you have, the less you can borrow.

    Do you have any loans and credit cards?

    If you want to borrow more, think about cutting up your credit cards because most lenders will take a worst case scenario approach and assume you’ll only pay back the minimum of your maximum card limit.

    For example, if you have a $10,000 limit on your credit card, the lender will assume you have to pay back 3 per cent of that each month, so they add $300 to your monthly expenses. Drop that limit, and you’ll be able to borrow a little bit more for your future home.

    Banks will also do the same with any personal loans you might have, such as a car loan, so if you can pay them down before you apply for a home loan, it could make a difference. 

    If you’ve already got a home loan, and you’re looking to take out another one, most lenders will factor in a buffer on top of your current repayment to prepare for potential higher rates in the future. We’ve included this buffer in our calculations.

    Living expenses

    While some people can recite their monthly expenses down to the cent, living expenses are usually tough to estimate for many people. Sit down with your monthly bills, your credit card and transaction account statements to work out exactly what your outgoings look like.

    And if you think it’s something you could easily fib your way through, think again.  Not only are they not going to believe you if you lowball them with overly modest monthly expenses, you could also potentially be stuck with a home loan you can’t afford for the next 30 years.

    The industry standard for working out minimum monthly expenses is based on whether you’re a single borrower or teaming up with another person, and the number of dependents. This is in line with the Melbourne Institute’s quarterly report.

    The current minimums are:

     Number of dependents (kids I support) Single (it's just me)  Joint (there's two of us) 
    $1518  $2207
    1 $2085 $2744
    2 $2622 $3280
    3 $3158 $3816
    4 $3694 $4347

    The consequences of living in mortgage stress can be extreme. If you think you’ll have trouble making ends meet, talk to a financial advisor or a financial counsellor, many of whom offer free services.

    What exactly is mortgage stress and how do you avoid it?

    Mortgage stress occurs when a household has to use at least 30 per cent of its pre-tax household income to pay off their mortgage.

    Mortgage stress affects many Australian households and here are some of the reasons why it happens:

    • A borrower may have bought a property that’s beyond their means. 
    • A household’s income might have dropped significantly, perhaps because somebody has lost their job.
    • A household’s cost of living may have gone up, perhaps from an interest rate or school fee hike.

    Fortunately, there are a few ways to prevent or get out of mortgage stress:

    • Use a borrowing calculator to figure out how your finances would be affected by different repayment scenarios. 
    • Try a budgeting app to take control of your spending.
    • Consider reducing your spending by cutting unnecessary costs, such as dining out or big overseas holidays.