Factors that Affect Borrowing Capacity and Ways to Improve It

Australia currently has 10.3 million properties, with over 6 million having mortgages. These home loans are worth over a total of 2.1 trillion AUD, uncovering an average new loan debt of 456,000 in the past couple of years. AUD Those looking to buy a home, car or loan for a wedding shortly must workout the range they can borrow. Borrowing calculator helps lenders and borrowers conduct a general assessment of their incomes and expenses. It enables them to understand their borrowing power and optimize it to get the best value or adjust their property search to find dwellings that fit the price range.

Formula to Calculate Borrowing Power

Generally, banks and lenders use a borrowing calculator to determine the total gross income of an individual. They then subtract the expenditure on tax, existing and new commitments, living expenses and buffer amounts that form the monthly expense. For example, if an individual has a monthly income of $50,000, where $10,000 goes as tax, $3,000 on credit card payments, $5,000 on a new home loan, $5,000 on living expenses, $5,000 on investments, and $2,000 buffer, then their monthly surplus would be $20,000 which lenders ‘pass’ as a fair amount.

Income Sources That Bank and Lenders Consider For Gross Income

Basic Income

All money lenders accept the gross salaries that individuals get as a part of their work as base income. Banks agree on specific income types for loans.


As bonuses are irregular incomes, lenders usually ask for a 2-year history to determine consistency, or some don’t accept all bonuses.


Some lenders and banks accept 100% of overtime if individuals provide records of regularity and consistency. Others accept 50% of overtime income depending on the individual’s records for loan assessment.


Some loan lenders accept commissions as a form of income if they come with the job role of the borrower. They must show consistent commission as a source of income for at least 2-years. It determines if this source of income is regular and would help with the repayment. Real estate agents and sales executives can benefit from commissions as their income source.


Lenders accept steady rent from property investments, commercial or as a source of income with supporting records. They typically consider 80% of the rent income as about 20% would redirect towards council rates, repairs and property management costs.

Other Factors That Affect Borrowing Capacity


Lenders always consider the pre-existing assets while determining one’s borrowing power. These can include real estate, houses, precious metals, vehicles, shares, stocks and other investments—the better the asset history and portfolio, the better the chances of getting a beneficial loan.

Home Loan Type, Interest Rate and Term

The loan amount also depends on the above-mentioned factors. Loans with lower interest rates have lower repayments. Long-term loans also have lower repayment amounts. With short-term loans, the repayment amount might be high, but individuals would save on interest in the long run. Individuals must consider their income and repayment capacity in their borrowing calculator to determine their power.

Property Deposit and Value

Lenders also consider the property’s worth through its locality, demand, development, condition, neighborhood, and appreciation value while determining the loan amount. They conduct a thorough evaluation of the property to determine the exact amount they can lend to purchase the property.

Credit History

A person’s credit history plays a significant role in determining their borrowing capacity. It also reflects how the individual designs his lifestyle and living expenses around their income. Those who can prove their reliability in meeting financial obligations on time can benefit from borrowing higher amounts.