How to Estimate Borrowing Capacity: What Really Moves Your Number

By Andrew Paterson

To estimate borrowing capacity, a lender takes your income and subtracts your living expenses and debt repayments. It then tests whether the surplus covers a new loan at a higher, stressed interest rate.

That sounds simple. In practice, two lenders can look at the same payslips and land tens of thousands of dollars apart.

This guide shows how the number moves. It includes worked examples for car loans, credit cards, HECS/HELP, buy now pay later (BNPL) and age, using the rules in place as at November 2026.

How lenders work out your borrowing power

Every lender runs a serviceability calculation. The details differ, but the structure looks like this:

1. Net income. Your after-tax income, with some income types shaded down.
2. Minus living expenses. Usually the higher of what you declare or the lender’s benchmark for your household size.
3. Minus existing commitments. Car loans, personal loans, credit card limits, BNPL and HECS/HELP repayments.
4. Tested at a stressed rate. The surplus must cover the new loan’s repayments at the actual rate plus a buffer.

Your maximum borrowing capacity is the loan amount whose stressed repayment fits inside that monthly surplus.

The 3% serviceability buffer

APRA requires banks to assess new loans at 3 percentage points above the actual rate. The buffer has sat at 3% since October 2021, and industry calls to cut it have been rejected.

With the RBA cash rate at 4.85% after the November 2026 rise, the stress test bites. If your loan rate is 7.0%, the lender checks you could manage repayments at 10.0%.

On a 30-year principal and interest loan, that’s the gap between about $665 and $878 a month per $100,000 borrowed.

The debt-to-income cap from February 2026

Serviceability is no longer the only system-wide limit. From 1 February 2026, APRA requires banks to keep new loans at 6 times income or more to no more than 20% of new lending.

The cap applies separately to owner-occupier and investor lending. It doesn’t ban high debt-to-income (DTI) loans. It rations them.

Example: a couple earning $200,000 combined who want $1.25 million in total debt sit at 6.25 times income. They might pass serviceability. A lender close to its 20% quota could still decline or ask them to borrow less.

This matters most for higher earners, investors carrying existing debt and anyone stretching to the top of their capacity.

A baseline example

Here’s a simplified version of the maths for one buyer. Real lender calculators are more detailed, but the logic is the same.

• Gross income: $110,000 salary, single, no dependants
• Net income: about $84,000 a year, or roughly $7,000 a month
• Living expenses used by the lender: $2,400 a month (assumed)
• Loan rate: 7.0% (assumed), assessed at 10.0% over 30 years
• No other debts

The monthly surplus is $4,600. At $878 per $100,000, that supports a loan of roughly $524,000.

That’s about 4.8 times gross income, so the DTI cap isn’t in play. Now let’s add real life.

Why the same income gets different answers at different lenders

Two lenders can assess the same file and produce very different figures. Each sets its own policy on four main levers:

• Expense benchmarks. Lenders use different benchmark tables and adjust them differently for dependants and income bands.
• Income shading. Overtime, bonuses, commissions and rental income are often counted at less than 100%. Rental income is commonly shaded to around 80%.
• Liability treatment. Credit card limits, BNPL and HECS are assessed using different formulas.
• Carve-outs. Some lenders soften the treatment of debts that will clear soon. Others don’t.

Income treatment alone can swing the result. If one lender recognises $30,000 more of your income than another, your capacity can shift by well over $100,000.

This is why a single bank calculator gives you one lender’s view, not the market’s.

Car loans and personal loans: the repayment counts, not the balance

Lenders treat car loans and personal loans by their contractual monthly repayment. The outstanding balance barely enters the maths.

Take the baseline buyer and add a car loan at $600 a month. The surplus drops from $4,600 to $4,000.

Borrowing capacity falls from about $524,000 to about $456,000. That’s a $68,000 hit from one car repayment.

This is the one I see catch people out most often. If that car loan has only $4,000 left owing, the lender still counts the full $600 a month.

Paying it down by half often changes nothing. Paying it off and closing it removes the whole repayment from the calculation.

Whether clearing a debt is the right move depends on your deposit, your cash buffer and what else that money needs to do. It’s worth modelling both ways before deciding.

Credit cards: the limit counts, not the balance

Most lenders assess a credit card at a set percentage of its limit, commonly around 3% a month. They do this even if you clear the balance every month.

• $5,000 limit: about $150 a month counted, roughly $17,000 off capacity
• $10,000 limit: about $300 a month, roughly $34,000 off
• $20,000 limit: about $600 a month, roughly $68,000 off

Reducing an unused limit is one of the quickest ways to lift your number. Keep a card if you need it, but check the limit matches how you use it.

Does a HECS debt affect your borrowing capacity?

Yes, though not in the way most people expect. HECS/HELP debt doesn’t appear on your credit file with Equifax, illion or Experian.

Instead, lenders deduct the compulsory repayment from your income. It works like a committed monthly expense.

How HECS repayments work in 2026-27

HELP repayments moved to a marginal system from 2025-26. For 2026-27 the bands are:

• Below $69,528: no compulsory repayment
• $69,528 to $129,717: 15c per dollar above the threshold
• $129,717 to $186,050: $9,028 plus 17c per dollar above $129,717
• Above $186,050: 10% of total repayment income

For our $110,000 buyer, that’s ($110,000 minus $69,528) × 15%. That comes to about $6,071 a year, or $506 a month.

Counted in full, it cuts capacity by about $58,000. The repayment depends on your income, not the size of the debt.

At a standard-treatment lender, a $10,000 balance and a $60,000 balance cost the same in servicing. The payout timeframe is what changes the picture.

Why the same HECS balance costs more at some lenders

Several major lenders, including CommBank, ING, Westpac and St George, have softened HECS treatment where the debt will clear soon. Policies vary and change, but the common approaches look like this:

Treatment	When it usually applies	Borrowing power ($110k buyer)
Full exclusion	Debt expected to clear within 12 months	About $524,000
Reduced assessment	Debt clears within 1 to 5 years	Between $466,000 and $524,000, depending on the formula
Standard deduction	Longer payout, or no carve-out at that lender	About $466,000

A buyer with $5,000 of HECS left would clear it in under a year at $6,071 a year. At an excluding lender, it costs nothing in servicing. At a standard lender, it costs about $58,000.

Ignoring indexation, a $25,000 balance takes about four years and may fall into a reduced-assessment window. A $40,000 balance, at roughly six and a half years, usually gets standard treatment.

If you’re close to a threshold, a voluntary lump-sum repayment can sometimes move you into a better category. Check the numbers first, because that cash may work harder as deposit.

BNPL: no longer invisible to lenders

Until mid-2025, buy now pay later sat mostly outside credit laws. That changed on 10 June 2025.

Providers such as Afterpay, Zip, Klarna and CommBank StepPay must now hold an Australian Credit Licence. They must run credit checks and meet responsible lending obligations.

For a home loan application, that means two things:

• BNPL credit checks and enquiries can show on your credit file.
• Recurring BNPL repayments in your bank statements get treated like a car loan or credit card repayment.

The amounts look small, but they add up. A $50 monthly BNPL habit trims roughly $6,000 from our baseline buyer’s capacity. At $150 a month, it’s about $17,000.

Frequent BNPL use can also prompt questions about spending. An underwriter reading three months of statements notices a steady stream of instalments.

If you plan to apply soon, consider closing accounts you no longer use. Avoid starting new plans in the three months before you apply.

Two buyers, same income, very different borrowing power

Here’s how these factors combine. Both buyers earn $110,000, are single and use the same rate and expense assumptions.

Factor	Buyer A	Buyer B
Car loan	None	$600 a month
Credit card	Closed	$8,000 limit ($240 a month)
HECS/HELP	$5,000, clears within 12 months (excluded)	$35,000, standard treatment ($506 a month)
BNPL	None	$120 a month
Monthly surplus	$4,600	$3,134
Estimated borrowing power	About $524,000	About $357,000

Same salary. A $167,000 gap.

Buyer B isn’t reckless. A car repayment, a modest card limit, a uni debt and a few BNPL plans are normal. That’s exactly why their combined effect is easy to underestimate.

Buyer B also has options. Closing the card and BNPL accounts adds back about $41,000. Clearing the car loan adds about $68,000 more.

Whether those steps make sense depends on their savings, their timing and what the next few years might bring.

Age, assets and the exit strategy

There’s no legislated maximum age for a home loan in Australia, and lenders generally can’t refuse you on age alone. They do assess whether the loan can be repaid before or into retirement.

Some lenders ask for a documented exit strategy from around age 45. Many lenders ask by 55 when the loan term runs past likely retirement.

An exit strategy shows how you’d clear the debt. Common examples include:

• Superannuation balance and projected growth
• Equity in another property you plan to sell
• Planned downsizing
• Investments or other assets

What a shorter term does to your number

Compare our baseline buyer at 35 and at 55, with the same income and no debts.

• At 35, on a 30-year term: about $524,000
• At 55, if the lender limits the term to 15 years: about $428,000

The shorter term lifts the stressed repayment to about $1,075 per $100,000. That removes roughly $96,000 of capacity.

A well-documented exit strategy can help an older borrower access a longer term at some lenders. Strong assets relative to age make that conversation easier.

Genuine savings and your deposit

Borrowing power is only half the equation. You also need a deposit the lender accepts.

Most lenders want genuine savings of at least 5% of the purchase price. That money must sit in your own account for at least three months.

On a $550,000 purchase, that’s $27,500. Gifts, tax refunds and bonuses usually don’t count unless they’ve been held for that period.

Some lenders accept other evidence, such as a consistent rental history. If your savings record is patchy, ask before assuming you can’t proceed.

Before you apply: a practical checklist

1. List every commitment. Car loans, personal loans, cards, BNPL, HECS and any guarantees.
2. Review card limits. Reduce or close limits you don’t use.
3. Tidy up BNPL. Close unused accounts and avoid new plans for at least three months before applying.
4. Check your HECS balance. Find it in myGov and work out how long it will take to clear at your income.
5. Weigh paying off small loans. Clearing a debt removes its whole repayment. Paying part of it often doesn’t.
6. Build genuine savings. Aim for at least 5% held for three months or more.
7. Gather income evidence. Payslips, tax returns and records of overtime or bonuses help lenders count more of your income.
8. Prepare an exit strategy if relevant. If you’re 45 or older, have your super and asset details ready.
9. Don’t rely on one calculator. Compare lender policies, not just rates.

Using a borrowing power calculator sensibly

A borrowing power calculator is a useful starting point. It gives you one lender’s estimate based on what you enter.

It won’t know how that lender shades your bonus, treats your HECS or reads your bank statements. It also won’t show how another lender would assess you.

At Aussiewide, we run your figures against multiple lenders’ policies. That shows where your maximum borrowing capacity sits across the market and which lenders suit your mix of income and debts.

The highest number isn’t always the right target. A loan should leave room for rate rises, life changes and the things you care about.

Important information

Borrowing power estimates in this article are indicative only and use simplified assumptions. Actual approval depends on individual lender credit policy, full verification of income and expenses, and your credit history. Get a formal assessment from a lender or mortgage broker before relying on any figure.

Interest rates, the RBA cash rate, APRA settings (including the serviceability buffer and DTI limits) and HECS/HELP thresholds change periodically. Figures are current as at November 2026 and should be checked at the time you apply.

This content is general information only and is not personal financial or credit advice. For specific HECS/HELP, BNPL or borrowing capacity questions, speak with a licensed mortgage broker or financial adviser, or contact the ATO for HECS/HELP details.

Frequently asked questions

How can I estimate my borrowing capacity?

Start with your after-tax monthly income, subtract living expenses and all debt repayments, then see what loan that surplus covers at your rate plus 3%. A bank calculator gives one lender’s estimate. A broker can compare how several lenders assess the same figures.

Does a HECS debt affect your borrowing capacity?

Yes. HECS/HELP isn’t on your credit file, but lenders deduct the compulsory repayment from your income. At $110,000 in 2026-27 that’s about $506 a month. Some lenders exclude or soften it if the debt will clear within 12 months or a few years.

How much does a car loan reduce borrowing power?

Lenders count the monthly repayment, not the balance. In our example, a $600 monthly car repayment cut borrowing power by about $68,000. Paying the loan off and closing it removes the repayment from the calculation.

Does Afterpay or other BNPL affect a home loan application?

It can. Since 10 June 2025, BNPL providers must hold a credit licence and run credit checks. Enquiries can show on your credit file, and recurring BNPL repayments in your bank statements are treated like other debt repayments.

Why do different lenders give different borrowing power for the same income?

Each lender sets its own expense benchmarks, income shading, liability formulas and carve-outs for debts like HECS. Those policy differences can move the result by tens of thousands of dollars for the same borrower.