This is why it’s important to close any unused credit cards or reduce the credit limit on cards you’re currently using. For example, if you have one credit card with a $10,000 limit and another with a $3,000 limit, the lender will write down a $13,000 debt against you. Lenders will consider any credit cards to be drawn to their full limit even if you have never exceeded the allocated credit limit or found yourself behind repayments. How your existing credit card and overdraft limit can impact your borrowing power If your expenses outweigh your income, regardless of how much you earn, then the lender perceives you as ‘high risk’. If your expenses are higher than your income, the lower your borrowing capacity will be as the lender will view you as being unable to manage home loan repayments.īanks and lenders are ultimately trying to assess you as a credit risk. On the other end of the spectrum are your expenses. Sometimes, high-income earners may be surprised to learn their borrowing capacity is low because they have a lot of financial commitments leaving them with little disposable income, which can give lenders a reason to reduce the amount they are willing to lend. The more income you can prove you earn to a lender, the greater your borrowing capacity is likely to be.Ĭonsequently, the likelihood of being issued with a home loan becomes more attainable - especially if your expenses or debts are well covered by your income. How your income and expenses can impact your borrowing power The calculator also doesn't factor in interest rate fluctuations. It’s important to note the calculator assumes a fixed rate for the entire life of the loan. This means your monthly repayments will predominantly pay down the principal amount of the loan, however the monthly repayments will be substantially higher as a result. If the loan term is shortened, this will decrease the amount of interest you will be charged over the entire life of the loan. The lower the interest rate, the higher your borrowing capacity as the total amount of interest applicable to the entire life of the loan will be lower – assuming interest rates do not change. How the interest rate and loan term can impact your borrowing powerĬhanging the interest rate and loan term can have a significant impact on your borrowing power. Here’s how these factors can impact your borrowing capacity. Our borrowing power calculator asks you to enter details including your loan term and interest rate, income and expenses, and any outstanding debts and credit card limits. Your income, expenses and deposit are the biggest factors determining your borrowing power, but lenders also consider other factors such as your existing debts and if you are using a guarantor for the loan. Different terms, fees or other loan amounts might result in a different comparison rate. Warning: this comparison rate is true only for this example and may not include all fees and charges. *The Comparison rate is based on a $150,000 loan over 25 years. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Take note the calculator will estimate your borrowing power based on a fixed interest rate over a loan term.īuying a home? Compare some of the lowest home loan interest rates in the market using our table below:īase criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Lastly you’ll need to fill in the details of your loan including the interest rate and the loan term. You’ll need to enter your overall day-to-day expenses, existing loan repayments and any other financial commitments such as insurance, additional superannuation contributions, and the combined limit of your credit cards and overdrafts. The calculator will ask you to provide all your income streams including your net salary before tax, rental income, and any other regular sources of income. There are three parts to this calculator: Annual income, monthly expenses and loan details.Īnnual income. If you’re not sure, just put an estimate. Your Mortgage’s borrowing power calculator considers a few important factors that can determine your borrowing capacity, or how much you would be eligible to take out on a home loan. How to use our borrowing power calculator
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