What is borrowing power?
Borrowing power is a term that lenders sometimes use to describe the loan amount you could borrow when applying for a personal loan or home loan.
In some ways, learning your borrowing power is the first step in any serious property search. Having a good idea of what you could buy can make it easier to find an affordable property.
The mortgage calculator on this page can help you estimate your borrowing power, using some basic details about your financial situation. But there are many other things that affect your borrowing power when you actually apply for a home loan. Here are some of the main things lenders consider.
Perhaps the single-most-important thing affecting your borrowing power is how much you’ve saved for a deposit. The more deposit you have, the more you can borrow.
We’re often asked if it’s possible to buy a house with less than 20% deposit. The answer is yes – it is possible, but you might need to pay Lender's Mortgage Insurance.
Lenders see genuine savings as a positive sign when figuring out how much to lend for a home loan. Evidence of genuine savings recorded consistently over time can help to show that the applicant has the financial discipline needed to maintain home loan repayments in the long term.
The money you have in a savings account is the most obvious example of genuine savings, but you can include term deposits, shares and managed funds. If you’re renting, St.George can also count the rent you pay as evidence of genuine savings (though conditions apply).
Genuine savings could come from other sources, such as gifts from family members. Ideally, it should make up at least 5% of the value of the property you want to purchase.
After your deposit and genuine savings, your income could be the most significant factor affecting how much you can borrow. Any lender will want to see how much you earn and your income history. This helps to gauge how much you can afford to repay and whether you could maintain repayments comfortably over the life of the loan.
You can count bonus payments and commissions as part of your income. If you’re self-employed, you may need to provide more information about your business, such as company financial statements and tax returns, in addition to your personal tax return and notice of assessment. The lender might even consider counting any supplementary income, such as the Family Tax Benefit.
Long story short: the more income you can show, the greater your borrowing power will be.
Any debts you have could also affect your borrowing power. Even if you don’t use them, the credit limits on credit cards or line of credit accounts may affect how much you can borrow.
The more credit cards you have, the lower your borrowing power. If you are able to close or reduce any credit cards or debt accounts you don’t need, it may help you to borrow more for your home.
They may seem insignificant compared to a deposit or home loan, but your living expenses are an important factor that could influence how much you can borrow.
Before applying, take time to work out your living expenses. If they seem high compared to your take-home income, consider which changes you could make to bring your expenses down.
How to increase your borrowing power
There are many steps you can take that may help to increase your borrowing power when you apply for a home loan. These include:
Saving – the first step in any home-buying journey is to save a deposit. Having a strong deposit may mean you pay less or no Lender's Mortgage Insurance as part of the loan.
Reducing other debts – reducing credit limits, paying down balances or closing unsecured debts such as credit cards, personal loans and line of credit accounts may help to boost your borrowing power.
Checking your credit health – take a moment to check your credit history and credit score with reporting bodies such as Equifax and Illion. A healthy credit report and good score may improve your borrowing power, while a lower credit score could limit your options.
Remember that increased borrowing power may not be useful to you if you can’t afford mortgage repayments on the loan. It’s also worth considering how your circumstances could change over the course of the loan and to keep that in mind when using the above borrowing power calculator.
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The information on our mortgage calculator is prepared without knowing your personal financial circumstances. Before you act on this, please consider if it’s right for you.
+LVR stands for the initial loan to value ratio at loan approval. LVR is the amount of your loan compared to the Bank’s valuation of your property offered to secure your loan expressed as a percentage. Home loan rates for new loans are set based on the initial LVR and don’t change because of changes to the LVR during the life of the loan.
# Higher minimum deposit will be required in some areas. 5% genuine savings required. Loans subject to credit criteria. Where the loan to valuation ratio is 80% or above, lenders mortgage insurance will be required for a fee. Other fees, charges and purchase costs apply. Terms and Conditions available upon application. (Additional funds required for transaction and establishment costs).
1. Interest rate is subject to change.
2. The comparison rate is based on a loan of $150,000 over a 25 year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
*This calculation is not an offer of credit but an estimate only of what you may be able to borrow based on the information provided and does not include all applicable fees (except for monthly fees). Your borrowing power amount may be different when you complete a full application and we capture all details relevant to our lending criteria. Our lending criteria and basis upon which we assess what you can afford may change at any time without notice. Before acting on this calculation you should seek professional advice.
3. Basic Home Loan Promotional Rate:
This offer is only available for new Basic Home Loan applications received from 19 September 2018. Discount applies to our Basic Home Loan offer for the life of the loan. Excludes internal refinances and switches within St.George, Bank of Melbourne and BankSA. This offer may be varied or withdrawn at any time. Interest rates subject to change.
4. Basic Home Loan Promotional Rate:
This offer is only available for new Basic Home Loan applications received from 7 November 2018. Discount applies to our Basic Home Loan offer for the life of the loan. Excludes internal refinances and switches within St.George, Bank of Melbourne and BankSA. This offer may be varied or withdrawn at any time. Interest rates subject to change.
The calculator does not take into account any future refinancing options which may be available.
The calculator does not take into account any grants or any applicable bank fees. For details on fees and charges, please go to stgeorge.com.au