Borrowing Power Calculator

At iSelect our Borrowing Power Calculator that provides you with an indication of the maximum amount you may be able to borrow, based on your stated income and expenses. It will also be able to show you approximately how much you may have to pay back if you were to borrow this amount from a lender, helping you to start budgeting accordingly.

Keep in mind, the calculator is a useful tool to get you started on your home owning journey – but the final amount will be subject to verification of your financial situation and lender approval.

How to use the calculator

Step 1. Loan Details

• Fill in your estimations of the type of loan you’d be approved for including the estimated interest rate

Step 2. Income details

• Choose whether you want to enter your income as a weekly, fortnightly, monthly or annual figure
• Will you be flying solo or chipping in with your partner or someone else?
• Do you have any dependants (i.e. children)? If so, how many?
• Your after-tax income as per your selected time period
• Your partner’s after-tax income (if applicable)
• Any other income you receive, e.g. from share dividends or other investments

Step 3. Expenses

• Choose whether to fill in your expenses in either 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 our calculator can show

The calculator graph shows both the principal (amount you borrowed) and the total amount owed, including interest. It also shows the maximum amount you may be able to borrow at the interest rate you selected, as well as the monthly repayments.

The yearly breakdown tab shows the years of the loan, the interest paid per annum, the principal amount and the total amount owed.

All of this information should give you a good basis for starting to prepare for your future as a homeowner.

Tips that may help you increase your borrowing power

Before you can set a realistic budget for buying your property – either for your home or as an investment property – you need to find out how much you can borrow. Your borrowing power depends on your income, assets, and current living expenses, as well as the size of your deposit and credit history.

So what if the amount you’re seeing above isn’t quite what you were hoping? It may be time to make some adjustments to increase your borrowing power.

Tip #1: Cash flow

Living expenses have a way of drying up your cash flow. That’s why it’s crucial that you start to keep a record of what you’re spending. This means tracking your bills and seeing where you can save. For example, are you on a suitable plan for internet, or for your gas and electricity?

But it’s not just the utilities. Are you eating out or using Uber Eats too much? Do you really need that Netflix account? All of these small expenses can add up and affect your cash flow, which may have a negative impact on your home loan application¹.

We’re not saying you need to cut out everything – you should always leave some room for entertainment – but having a budget means there may need to be some sacrifices.

Tip #2: Deposit

As a general rule, the more money you can put down as a house deposit, the better². Not only does a bigger deposit mean you 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 repayments³.

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 goes 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 lenders⁴.

Having a bad credit history may reduce the amount you can borrow, and can potentially increase your interest rate, which can severely limit how much you can afford⁴. 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.

If you have any credit cards that aren’t being used, it’s also recommended you shut them down, as this can negatively affect your borrowing power too.

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 you to reach your dream of becoming a homeowner.

Sources:
1. https://www.afr.com/property/uber-eats-afterpay-and-netflix-accounts-could-hurt-your-home-loan-application-20181128-h18ghz
2. https://www.moneysmart.gov.au/borrowing-and-credit/home-loans
3. https://www.moneysmart.gov.au/glossary/l/lenders-mortgage-insurance-lmi
4. https://www.moneysmart.gov.au/borrowing-and-credit/borrowing-basics/loan-rejection