One of the most exciting parts about buying a new house is scouting your nearby areas to see what is available. However, it is not always possible to purchase the property you like outright. Most Aussies need a home loan to finance their home-buying needs. It is imperative to know your borrowing power before you make a home loan application since a declined application can hamper your credit score. The amount you can borrow is dependent on your financial situation. This is largely composed of your income, financial commitments, credit history, and savings. Manually determining your borrowing power can be a tedious task. This is why we have created the Borrowing Power Calculator, which you can use to determine the amount you can borrow easily. Let’s take a look at what borrowing power is and how you can use this calculator to make your borrowing journey seamless.

What is Borrowing Power?

If you have ever asked yourself, ‘How much can I afford?’, you innately understand the concept of borrowing power. In official financial terms, borrowing power can be defined as the amount of money a person can borrow at any given time, based on their financial situation. Correctly estimating the borrowing power enables the borrower to plan the finances so that there is no extra repayment burden.

What is a Borrowing Power Calculator?

The borrowing power calculator is a powerful AI-backed tool that enables borrowers to determine how much they can borrow on the basis of their financial situation. All the calculator needs is a few key inputs to determine how much you can afford to borrow. This amount is calculated on the income and expense details entered by the user. The calculator then considers other factors like living expenses, existing debt, etc., to give you an amount.

How Does the UM Oceania Borrowing Power Calculator Work?

The Urban Money calculator considers a few crucial bits of information like income and existing debt to calculate your borrowing power. The loan calculator uses the debt-to-income ratio metric to calculate how much you can repay. Given below are some of the other things that you will have to enter to calculate the borrowing power amount:

  • Down Payment: The borrowing power calculator automatically assumes that you will be depositing 20% of the amount as a down payment. Most loan providers require a minimum of at least 3% as a down payment. You can manually adjust the slider according to how much down payment you are willing to put down.
  • Interest Rate: This field will be auto-populated with an average mortgage interest rate based on current market conditions. The interest rate you get will depend on your credit profile.
  • Yearly Property Tax: The calculator automatically considers the national average as a default percentage for property taxes. Please note that the taxes vary from state to state.

Features and Benefits of Borrowing Power Calculator

Using the Urban Money borrowing power calculator while purchasing a property can give you an idea about how much you can borrow for a loan. The amount might vary from lender to lender, but the accuracy of this tool is very close. Given below are some of the benefits of using the borrowing power calculator:

  • This calculator can help you understand whether you need to adjust your budget, preferences, and property search.
  • This loan can shed light on which existing loan you need to pay off to increase your borrowing capacity.
  • The calculator provides different repayment schedule options, which can help you analyse your total repayments once the loan is approved.

Things to Know About Borrowing Power Calculator

Given below are some of the things that you should keep in mind about the Urban Money borrowing power calculator:

  • The calculation provided by this tool is not a loan offer but only an estimate of what you can borrow based on the information entered by you.
  • The figure provided by this calculator does not include any applicable fees.
  • The borrowing power amount might differ from the estimate when you complete a full application, and all the details regarding the lending criteria are captured.
  • All the interest rates populated on the calculator are current and subject to change at the bank's discretion.
  • The calculator does not consider any future possibilities of refinancing which might be available.
  • The calculator does not factor in any features or grants.
  • You should always seek the advice of a Mortgage Officer before making a loan decision based on this calculation.

What is the Formula for Calculating Borrowing Power?

Given below are the two calculation techniques the lenders in Australia use to calculate your borrowing power:

  • Total Net Income – Total Repayments – Living Costs = Your Net Surplus Income
  • Total Debt / Total Gross Income = Debt to Income Ratio (DTI)

The total loan repayment amount is usually calculated with a 2.5% buffer added to the interest rate (to test if you can pay the loan over a long term). Your lender might also consider a minimum net surplus amount.

Further, when your Debt-to-Income ratio is more than 6 or 7, it may lead to a rejection of your loan application. For example, if you have an income of $100,000 and a debt of $700,000, your DTI will be 7). This is assuming that the lender accepts 100% of your gross income.

Factors Affecting the Borrowing Power

While it is not possible to be 100% sure about what each lender looks at while determining the borrowing power, there are some key factors that most lenders will consider. Given below are some of the factors that affect your borrowing power:

  • Total Income and Financial Commitments: Before a lender sanctions a home loan, they look at the applicant’s income stream, employment security, and ability to repay the loan. Your existing financial commitments, such as credit lines, car loans, and debt, will also be considered.
  • Living Expenses: While calculating your borrowing power, the lenders also factor in your living expenses. Lenders look into these factors to gauge if you can afford the repayments while continuing the lifestyle you have become accustomed to.
  • Deposit: The more money you have saved for your property deposit, the easier it will be to increase the borrowing capacity and obtain financing. 
  • Value of the Property: The amount a lender is willing to sanction depends on how much your property is worth. The lender evaluates the property to ensure it isn’t undervalued or overvalued.

Frequently Asked Questions

Does the loan tenure, type, and interest rate affect my borrowing power?

Your borrowing power depends on the interest rate, loan type, and loan term. A low-interest rate will lead to lower repayment amounts. A loan with a longer tenure means lower repayments but more interest payments throughout the tenure.

Can equity from another property be used to give me more borrowing power?

You can use your equity from another self-owned property to increase your borrowing power.

How many times my salary can I borrow for a home loan?

As a thumb rule, lenders use an income multiple of 4 to 4.5 times your salary to determine the mortgage amount. Some lenders might also use 5 or 6 times. Lenders rarely lend a maximum amount of up to 7 times your salary.


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