How much can I borrow

This is a common question and there are many calculators out there that will give you an estimate. However most lenders have different rates of assessment and policies to determine how much you can borrow and as a result a one size fits all calculator may not always give you an accurate picture.

Borrowing capacity is based on the amount of surplus funds that you have available to repay a mortgage each month. The calculation is done as follows:

Gross income
Less:
  • tax
  • living expenses
  • commitments (like car loan payment, credit card, HECS, etc)
The result is your uncommitted monthly income. The lender will then work out how much you can borrow based on how much uncommitted monthly income you have each month. When the lender does this they will base the calculation off an assessment rate, which is normally the lenders standard variable rate plus a margin. This margin is there to absorb any changes in interest rates or your circumstances.

Why borrowing capacity varies between lenders:
Looking at the basic components of the above calculation variations in borrowing capacity occur due to:

Gross income – what makes up your income. Is this base salary only or do you have overtime and allowances in your income? Do you have salary structuring in your income? Do you have a car allowance or fully paid company vehicle? Are you self employed? Do you have any other types of income, like rental income, royalties, etc. Lenders policies as to what you can use to calculate borrowing capacity varies, some lenders may let you include all your overtime, others may only allow 30%. Some lenders will allow all allowances and penalties for fly in fly out miners, while others will not. As a result the amount of income that is allowable for assessment will differ and affect your uncommitted monthly income.

Living expenses – lenders apply living expenses based on the hendersons poverty index or some similar basis. Effectively though you are rarely allowed to change this and this is pre-determined by the bank. The amount of living expenses allocated differs between lenders which will directly affect your uncommitted monthly income.

Commitments – some lenders will add a margin onto existing debts while others may not. If you have an existing mortgage on interest only, some lenders will assess based on the current repayment, while others will convert this to principle and interest. Credit cards are assessed based on the limit with lenders applying a different percentage of the limit. All these factors will impact your uncommitted monthly income further.

Assessment rate – the margin and standard variable rates used to calculate the assessment rate vary from lender to lender. With some lenders the assessment rates can vary depending on the product you choose. The assessment rate is used to calculate how much you can borrow based on your uncommitted monthly income and once again will yield a different result between lenders.

As you can see there are many variables which can impact your borrowing capacity. It is for this reason we prefer you call or email your Lime Mortgage Broker to review your circumstances and give you a more accurate view of your borrowing capacity rather than use a generic calculator which may not give you an accurate value. It is much better for you to have an accurate view of your borrowing capacity as this may make the difference between been able to afford the house you want!
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