How Lenders Calculate Borrowing Capacity
Your borrowing capacity is determined by lenders running your income, commitments and living expenses through their serviceability calculator — at an assessment rate typically 3% above the actual loan rate. This buffer is required by APRA to ensure you can still service the loan if rates rise significantly. The result varies by lender — sometimes by $100,000–$300,000 for the same borrower.
The single most impactful thing most borrowers can do to increase borrowing capacity is reduce credit card limits — not balances, limits. A $15,000 credit card limit is assessed as a $450/month commitment (3% of limit) by most lenders, regardless of whether you carry a balance. Reducing three credit cards from $15K to $5K each removes $900/month from your assessed commitments — potentially adding $80,000–$100,000 to your borrowing capacity.
Income Factors That Increase Borrowing Capacity
Base Salary
100% included by all lenders. The foundation of your serviceability assessment.
Overtime and Bonus Income
Most lenders include overtime and bonuses at 80–100% if you have 2 years of consistent history. Lenders who include these at 100% give you a meaningful capacity boost.
Rental Income
70–80% of rental income is included. If you own investment properties, income from them contributes to your borrowing capacity. We identify lenders who shade rental income most favourably.
Child Support and FTB
Documented child support (CSA assessment) and Family Tax Benefit A and B are included by most lenders at 80–100%. Often underestimated as a capacity booster.
Add-Backs for Self-Employed
Self-employed borrowers can significantly boost their assessed income through legitimate add-backs: depreciation, home office expenses, one-off non-recurring costs, and superannuation above SGC. The right lender and accountant working together can add $20,000–$50,000+ to your assessed income.
Liability Factors That Reduce Borrowing Capacity
- Credit card limits: 3% of the limit per month is assessed — regardless of balance. Reduce or close cards you don't use.
- Personal loans and car loans: Full repayment amount counted. Pay down or pay off before applying if possible.
- HECS debt: Compulsory repayment rate deducted from income. Paying off HECS (if balance is small) can boost capacity.
- Child support payable: Deducted as a monthly commitment. Cannot be reduced but should be documented accurately.
- Investment property shortfalls: Negative gearing properties increase your monthly commitments — the shortfall between rent and costs is counted.
Lender Selection — The Largest Variable
The same borrower, same income, same debts can borrow $100,000–$300,000 more with one lender vs another. Key variables by lender:
- Assessment rate buffer (some use 3%, others use 3.5%+)
- Living expense benchmarks (HEM vs actual expenses)
- Treatment of overtime, bonus, rental, commission income
- Credit card limit assessment (2% vs 3% of limit)
- How number of dependants is factored
Practical Steps to Maximise Your Capacity
- Reduce credit card limits to what you genuinely need (not zero — having credit history matters)
- Pay down personal loans and car loans if you have 6+ months before applying
- Lodge your most recent tax return before applying
- Consolidate multiple credit commitments where possible
- Don't make new credit applications in the 3–6 months before your home loan application
- Have your accountant prepare add-back documentation if you're self-employed