Take a borrower with $7,000 monthly net income and $3,500 of living expenses, looking at a 6.2 percent loan over 30 years. The surplus is $3,500, but lenders rarely let you commit every spare dollar, so the calculator allocates 90 percent of it, which is $3,150, to repayments. The key step is the serviceability buffer. APRA requires lenders to test you at your rate plus 3 percent, so the 6.2 percent loan is assessed at 9.20 percent, not 6.2 percent. Working backwards from a $3,150 repayment at 9.20 percent over 30 years, the maximum loan comes to about $384,590. If rates were assessed at the headline 6.2 percent the figure would be much higher, which is exactly why the buffer reduces how much you can borrow.
Step
Value
How it is calculated
Borrowing power starts from the monthly surplus, which is net income minus living expenses. The calculator allocates 90 percent of that surplus to a home loan repayment, leaving a margin for the costs lenders expect on top of the loan. It then applies the APRA serviceability buffer by adding 3 percentage points to your loan rate, so a 6.2 percent loan is tested at 9.20 percent. Using the present value of an annuity, it finds the largest loan whose repayment at the assessed rate over your chosen term equals that allocated surplus. The result is an estimate only. Real lenders also weigh your credit history, existing debts and card limits, dependants, and the Household Expenditure Measure benchmark, so treat this as a guide rather than a pre-approval.
Frequently asked questions
APRA buffer?
Lenders must assess your ability to repay at your loan rate + 3 percent (the serviceability buffer). So a 6.2% loan is assessed at 9.2%, reducing how much you can borrow.
What counts as monthly net income for borrowing power?
Net income is your take-home pay after tax, Medicare levy, and any salary sacrifice deductions. Lenders typically include regular overtime, rental income, and certain government payments, but usually shade these at 80 percent or less. Bonus income may be included if it is consistent across two or more years.
How do existing debts affect my borrowing power?
Outstanding debts such as personal loans, car finance, and credit card limits reduce the surplus available for a home loan repayment. Most lenders apply a minimum monthly repayment figure for each credit card limit you hold, even if you pay the balance in full each month. Reducing or closing unused credit cards before applying can meaningfully increase your maximum loan estimate.
Is this estimate the same as a formal pre-approval?
No. This calculator provides a guide only and does not account for your credit history, existing debts, number of dependants, or the Household Expenditure Measure (HEM) benchmark lenders compare against your declared expenses. A formal pre-approval from an authorised deposit-taking institution (ADI) is required before making an offer on a property.