Borrowing capacity calculator: what your figures could borrow, with the working shown

What do you need to put into a borrowing power calculator?

A borrowing power calculator needs six figures from you, and the result is only as good as the figures you give it. Have your payslips, your card statements and a rough idea of your monthly spending in front of you before you start.

A box you leave blank isn't counted as zero; it simply isn't entered. If you put in your income but no rate or term, the calculator shows what's left each month and asks for the other two before it gives a loan amount [7].

What income should you put into the calculator?

Put in the income a lender would count, not every dollar you earn. The calculator counts whatever you type in full, but lenders usually count a base salary in full and some other pay at less than its full value.

Overtime is the clearest case. Four lenders' credit policies, read by Money Brain, count 80% of regular overtime for most workers, once there's a history behind it [6]:

Allowances vary too. ANZ counts ongoing allowances in full, but not higher-duties pay or one-off payments; NAB counts recurring allowances in full from two consecutive payslips; ING counts allowances up to 25% of base pay [6]. Some lenders count overtime in full for certain health and emergency roles; those rules are on the nurse home loan page.

What this means for you: if overtime is a big part of your pay, put in 80% of it, not all of it, and only if you've been doing it for months. On $20,000 of overtime, that's $16,000. Your base salary is the part a calculator gets right.

Casual or contract: will the calculator figure hold?

A casual income can count in full, but only once you've been in the job long enough. Every lender in the table wants six months or more of casual history first [6].

So if you're three months into a casual role, the calculator's figure may not hold yet at any of these lenders, however strong the pay. ANZ adds one more rule: on a loan with LMI, a casual can't be the only or main earner [6]. LMI is lenders mortgage insurance, which protects the lender when you borrow more than 80% of the price.

New job, probation or parental leave: what figure do you use?

If you've just started a job, a lender usually wants proof you've started and been paid before it counts the new salary. Westpac's policy is a clear example: a loan without mortgage insurance needs you to have started and received at least one pay. A loan with mortgage insurance needs 3 months in the job, or less than that with 12 months in the same occupation and no gap of more than 2 months between jobs [6].

On parental leave, Westpac can use the base pay you'll return to, with your employer's letter giving the date and the hours. At Westpac every child counts as a dependant, including one not yet born, and if repayments start before you go back, you need savings to cover them on top of the money for the purchase [6].

In the calculator, put in the salary you'll be paid on your return, then add the cost of the new child to your spending. If the figure only works with overtime you won't have on your return, take the overtime out.

Why put in your card limits, not what you pay?

Put in a repayment on each card's full limit, because that's usually what a lender assesses, even on a card you clear every month. The calculator counts what you type, so if you enter what you usually pay, the figure will run high [7].

Lenders count the limit because you could spend it tomorrow. Store cards count the same way. A card you don't use still costs you borrowing power, which is why closing or cutting a limit you don't need can lift the figure.

Each lender sets its own repayment for a card limit, so there's no single figure to type. If you're not sure, ask your card provider what the minimum repayment would be with the card fully drawn.

What goes in 'everything else you spend'?

Everything you spend in a month, apart from loan and card repayments, goes in this box: bills, food, transport, insurance, school fees, childcare and subscriptions. Spread the costs that don't come monthly, such as car registration or annual insurance, across twelve months.

A lender uses its own benchmark for a household like yours when that's higher than what you declare. So putting in a low figure doesn't help at a lender; it only makes the calculator's number higher than the one you'll be given.

In the illustration in part 10, every $100 a month of spending takes about $12,400 off the figure, at a 9% test rate over 30 years [5].

What this means for you: spending is the box that is easiest to understate, and in the illustration a small change in it moves the result a lot. Look at three months of bank statements before you type it in.

How does the calculator take off tax?

The calculator takes off income tax at this year's resident rates, plus the 2% Medicare levy, from each earner's income separately, because that's how the ATO taxes people [3]. The result shows the tax it took off and what you take home each month.

It doesn't count tax offsets, the Medicare levy's low-income reduction, HECS-HELP repayments or the Medicare levy surcharge [3]. A HECS-HELP debt matters: the compulsory repayment comes off the income a lender counts, so with one, the calculator's figure runs high.

Does it matter how a couple's income is split?

Yes. Two people earning $50,000 each take home more than one person earning $100,000, because each income is taxed on its own and the lower rates apply twice. The calculator has a second box for this reason.

An illustration, not a client file: a household earning $100,000 in total, spending $3,000 a month, quoted 6% over 30 years [4][5].

What this means for you: if you're buying with a partner, put each income in its own box. Adding them together in one box overstates the tax and understates what you could borrow.

What interest rate should you use, and why does the calculator add 3%?

Use the rate you've been quoted, or the rate on your current loan. The calculator adds 3 percentage points to it for the test, because APRA expects banks to test your repayments at least that far above the rate you'd pay [1]. That gap is room for rates to rise.

Here's what the test does to one income. An illustration, not a client file: one earner on $100,000 a year, spending $3,000 a month, with a 30-year loan quoted at 6% [4].

The test takes about $147,000 off what the same income could repay at the rate actually charged. And the repayment on the $429,600 loan, at 6%, is about $2,576 a month, well inside the $3,457 that's left [4]. That's about $880 a month of room before the repayment would use all of it.

A lender can test higher than 3 points. APRA's figure is the minimum, not the rule every lender stops at [1].

How much does the rate you're quoted change what you can borrow?

A lower quoted rate lifts the figure, because the test rate falls with it. In the same illustration, each half a percent off the quoted rate adds roughly $17,000 to $20,000 [5].

What this means for you: a better rate helps, but in this illustration clearing a $250-a-month repayment (part 13) does more than half a percent off the rate.

Does a longer loan term let you borrow more?

Yes. A longer term spreads the same loan over more repayments, so the same monthly amount can repay a bigger loan. In the illustration, the 30-year figure is about $429,600; over 25 years it's about $411,900, about $17,700 less [5].

Most home loans run to 30 years, and that's the usual starting point. A shorter term costs less interest in total, but it lowers what the calculator, and a lender, will say you can borrow.

How much do your other debts cut what you can borrow?

Every regular repayment comes off what's left each month, and at the test rate each dollar of it costs you much more in borrowing power. In the illustration, a $250-a-month repayment takes the figure from about $429,600 to about $398,500, about $31,000 less [4].

A $500-a-month car loan takes it to about $367,500, about $62,100 less. Put simply, every $100 a month of repayments costs about $12,400 of borrowing power at a 9% test rate over 30 years [5].

What this means for you: paying off a small debt before you apply can be worth far more than the balance. A car loan with $6,000 left on it and a $250 repayment costs about $31,000 of borrowing power for as long as it's there.

What does the six-times-income warning mean?

The warning appears when the loan the calculator works out is six or more times your income before tax, both earners together [7]. APRA limits each bank to 20% of its new lending at that level, counted separately for home buyers and investors [2].

It isn't a ban. A loan at six times your income or more is still possible, but each bank has a limited share of that lending to give, so it has fewer places to go. The calculator compares the new loan with your income only; a lender counts your other debts too, which pushes the multiple higher [2][7].

In the part 10 illustration, the loan is about 4.3 times the income, so the warning doesn't appear [4]. As a second illustration, two earners on $100,000 each, spending $4,000 a month and quoted 6%, could repay about $1,107,800 at the test rate, about 5.5 times their income [5]. About $740 a month less spending, or a quoted rate of 5% instead of 6%, would take them over the line [5].

What if the calculator says there's nothing left?

If your repayments and spending use up everything you take home, the calculator shows what's left after tax, with its sign, and says there's nothing left for a loan repayment. It doesn't show a loan amount [7].

Check the figures before you read anything into it. Spending typed as a year instead of a month, or income typed as take-home pay, will do it. If the figures are right, the levers in part 14 show what would change the answer, and clearing a debt is often the fastest.

How accurate is a borrowing capacity calculator?

A borrowing capacity calculator is only as accurate as the rules it assumes, and every lender's rules differ. On a plain salary, no dependants and a card limit you've entered honestly, the gap to a lender's answer can be small.

It widens with every part of your income that isn't base pay, and with every person who depends on you. For self-employed income, shift work or a household with children, treat the figure as the top of the range, not the answer.

No calculator can say how far off it is for you, because the gap comes from the lender's rules, not the arithmetic. Lenders also disagree with each other, so the same figures can borrow noticeably more at one lender than another. Why that happens is explained on how much can I borrow.

Money Brain's calculator shows its working so you can see where it might be off: each assumption is listed under the result, with the date the buffer and the tax rates were checked [7].

Can you use the calculator if you're self-employed?

You can, but the income box needs care. Lenders usually work out self-employed income from your recent tax returns, with some accepting other evidence, so put in the taxable income on your latest return, not your turnover or this year's hopes.

Lenders also differ on what they add back to that income and how many years they want to see. The calculator can't model either. What lenders ask for, and where they differ, is on self-employed home loans.

Does the calculator work for an investment property?

Only in part. The calculator has no box for rent, and rent typed into the income box is counted in full, so it can't show what a lender would make of an investment purchase [7]. A lender adds part of the expected rent to your income, usually less than the full rent, and counts every existing loan at its test rate.

APRA's six-times-income limit is also counted separately for investors [2]. How a lender assesses an investment purchase is on how much can I borrow, and using the equity in your home to buy one is on using equity to buy an investment property.

Does your deposit change what you can borrow?

Your deposit doesn't change the calculator's figure, but it sets a second limit that the calculator doesn't show. A lender lends against the property's value as well as your income, and that limit is your LVR, the loan as a share of the property's price.

Above 80% LVR, a lender usually charges lenders mortgage insurance (LMI), and each lender has a highest LVR it will go to. So the figure you can borrow on your income and the figure your deposit allows can be very different, and whichever is lower decides what you can buy.

To turn the figure into a price, add your deposit, then take off stamp duty and the other costs of buying. The stamp duty calculator works out the duty. If the deposit is the limit, the ways around it are on LMI waivers, the 5% Deposit Scheme and a family guarantee.

What should you do with the figure?

Treat the figure as the top of a range and a starting point, not an answer. It's an estimate on your own figures, worked out in your browser, not an assessment, an approval or an offer [7].

The next step is a lender's own assessment of your documents: your payslips or tax returns, your statements and your card limits. A pre-approval, a lender's conditional yes before you find a property, is the figure to shop with. Using the calculator doesn't touch your credit file, because no credit file is checked and no lender is contacted [7].

To work out what that loan would cost you each month, the repayment calculator runs the repayments on the amount you choose.

What does a broker cost you?

How a broker is paid, and the rule Money Brain holds against it, is set out in full on its own page: what a mortgage broker costs.

Your first move

You've got the method: income counted the way a lender counts it, every card limit in, honest spending, and a test rate 3 points above the one you'd pay. The one question left is which lender gives the most on your real figures, and that's what Money Brain works out before anything goes to a lender.

When you're ready, the closing section below is the simplest way to start.