Borrowing Power Calculator

It’s a good question, and the first thing you should ask when you start looking for a new home. After all, if you don’t have a good idea of how much you can borrow from a lender, it’s impossible to know which properties you can afford. And nothing is crueler than falling in love with your dream home only to find out it really is only a dream, because you can’t borrow the necessary funds.

Borrowing Power Calculator

The iSelect Borrowing Power Calculator can give you an estimation of the maximum amount you may be able to borrow from a home loan lender. It can also give you an idea of what your repayments could be if you borrowed that amount. Once you know how much you could borrow and what your repayments could look like, you can start making plans and budgeting accordingly. Remember though, the Borrowing Power Calculator is useful to give you a rough idea of how much you can borrow. The actual amount, however, will be determined by the lender and the information you supply will have to be checked and verified.

How do I use the Borrowing Power Calculator?

To find out how much you could borrow, you’ll need to put your details into the Borrowing Power Calculator and it will do the rest. But be aware: getting a more accurate answer to the question ‘how much can I borrow?’ means being accurate with the details you provide. So, here are the details you’ll need.

Step 1. Loan Details

Here you need to put in the type of loan you want and an estimate of the interest rate. For more information on the types of home loans available, see our home loans page.

Step 2. Income details

Here you put in the amount you’re paid and some other details. You can choose to put in your weekly, fortnightly, monthly or annual figure. - Do you intend to take the loan out in partnership with somebody else? - Your after-tax income (weekly, fortnightly, monthly or annual, whichever you selected). - Your partner’s after-tax income (if applicable). - Any other income you receive, e.g. dividends from shares or other investments. - How many children/dependents do you have?

Step 3. Expenses

The Borrowing Power Calculator needs a breakdown of your expenses. You can choose whether to enter these as weekly, fortnightly, monthly, or annual amounts. - Include loan repayments for a car or personal loan. - Include your combined total limit of any credit cards, regardless of whether you owe anything on them.

What does the Borrowing Power Calculator show?

The calculator shows the maximum amount you may be able to borrow at the interest rate you selected, and what the monthly repayments could be if you borrowed that amount. The calculator graph shows both the principal (amount you borrowed) and the total amount owed, including interest. The yearly breakdown tab shows the years of the loan, the interest paid per annum, the principal amount and the total amount owed. All this information should give you a good basis for starting to prepare for your exciting future as a homeowner.

Can I increase my borrowing power?

As the Borrowing Power Calculator shows, how much you can borrow depends on your income, assets, and current living expenses, as well as the size of your deposit and credit history. If the calculator hasn’t given you the answer you were hoping for, it may be time to make some adjustments to increase your borrowing power.

Tip #1: Cash flow

Living expenses have a way of eating up your cash flow. That’s why it’s crucial for you to start to keep a record of your spending. This means tracking your bills and seeing where you can save. For example, are you on a suitable plan for your internet, or for your gas and electricity? It might be worth comparing plans with iSelect to see if you can find a better deal^. But it’s not just the utilities. Are you eating out or using delivery services too often? Spending too much on multiple streaming services? All these things could have a negative impact on how much you can borrow. We’re not saying you need to cut out everything – you should always leave some room for entertainment – but saving for your future dream home may require making some short term sacrifices.

Tip #2: Deposit

Typically the more money you can put down as a house deposit, the better. Not only does a bigger deposit mean you likely won’t have to borrow as much, it also may help you avoid paying Lenders Mortgage Insurance (LMI), which protects the lender if you default on your repayments. You’re typically required to pay LMI if you need to borrow over 80% of the purchase price. There are some exceptions, however, such as if a parent or family member acts as a guarantor on your loan.

Tip #3: Credit rating

How often do you pay your phone bill late? What about your electricity and gas? Have you ever been disconnected or suspended due to missing payments? All of this, and more can affect your credit rating which will be assessed by potential home loan lenders and could lead to your loan application being rejected. Having a bad credit history may reduce how much you can borrow, and can potentially increase your interest rate. This can severely limit how much you can afford. If you’re thinking about buying a property, it’s recommended you review your credit history to correct any mistakes, and ensure your bills are paid on time. And if you have any credit cards that you don’t use, it’s a good idea to close them off. Even unused credit can negatively affect how much you can borrow. Understanding your financial position is the first step to boosting your borrowing power. Budgeting carefully, setting a savings goal and building a strong credit history can all help increase how much you can borrow, and help you make your home-owning dream a reality.

Should I get pre-approval?

While our Borrowing Power Calculator can give you an indication of how much a lender may loan you, it’s not guaranteed. To avoid falling in love with a home you can’t afford, you may want to look into getting home loan pre-approval. Pre-approval is a formal indication from a lender that they are likely to approve you for a home loan of a particular amount. Since pre-approval offers are usually valid for 3-6 months, this gives you time to find a dream home within a realistic budget. Bear in mind that pre-approval doesn’t mean that your home is 100% guaranteed to be approved. This is an unlikely outcome; however, it can happen if:

• There are changes to your personal circumstances (e.g. unemployment)
• Lending policies change
• Government regulations change
• The property is negatively valued
• The property experiences a change in condition

Pre-approvals are a formal procedure and therefore count as a loan enquiry on your credit file. To avoid being perceived as a financial risk, avoid getting multiple pre-approvals and wait until you are serious about purchasing a home. In the meantime, try out our Borrowing Power Calculator.

How do I compare home loans?

If you’re buying a home, you may also be on the hunt for a home loan provider. Our team at iSelect have partnered with Lendi* to help you compare from a range of Australian loan providers. Get started comparing home loans online today, or give Lendi a call on 1300 186 260 (08:30-18:30).

Sources:
1. https://moneysmart.gov.au/home-loans
2. https://moneysmart.gov.au/glossary/lenders-mortgage-insurance-lmi
3. https://moneysmart.gov.au/loans/loan-rejection

^iSelect does not compare all products in the market. The availability of products iSelect compare may change from time to time. Not all products made available from iSelect’s providers are compared by iSelect and due to commercial arrangements, area or availability, not all products compared by iSelect will be available to all customers. Some products and special offers may only be available from iSelect’s call centre or website. Click here to view iSelect’s range of providers.

Last updated: 01/07/2021