How to calculate your borrowing power for a home loan in Australia:
To find out how much you may be able to borrow for a home loan, simply enter the following details into the borrowing power calculator:
- Household income
- Household expenses
- Loan interest rate
- Loan term
With this information, we can provide you with an estimate of your maximum borrowing amount, along with the estimated monthly repayments for that amount. You will also be able to view a comparison between the principal amount and the total amount (including interest) to better understand how much interest you will be paying for a loan of that amount.
The higher your maximum borrowing amount, the greater your borrowing power is. When you have more borrowing power, you will have the ability to take on a bigger home loan, which gives you an increased budget and more opportunities when it comes to buying a home.
Why you should use a borrowing power calculator
Using a borrowing power calculator is a crucial part of considering a home loan. It provides an estimate of how much you can borrow based on your income, expenses, and loan details. This home loan borrowing calculator tool offers insights into your affordability, helping you set realistic expectations for your property search. By adjusting the different variables on the calculator, you can explore different loan amounts, interest rates, and loan terms to find the right fit for your financial situation. A borrowing power calculator streamlines the initial stages of your home-buying journey, empowering you to make informed decisions, avoid overextension, and align your property choices with your budget constraints.
Frequently asked questions
What is ‘borrowing power’, and how does it affect my ability to get a home loan?
This term refers to your ability to borrow money from lenders. The more borrowing power you have, the higher the amount you’ll be able to borrow on your home loan. Borrowing power is typically affected by things like how much you earn (income) and how much you spend (expenses), but lenders can also take other financial elements, such as credit card debts or personal loans, into account.
How do I increase my borrowing power?
Increasing your capacity to borrow on a home loan is possible by doing the following:
- Improving your credit score: A good credit score can make you look more trustworthy to lenders and result in favourable loan terms. Make sure you pay your bills on time and minimise your existing debts.
- Build savings: Your savings history can showcase your ability to manage your finances well and can boost your attractiveness to lenders.
- Increase your income: Increasing your income will not only strengthen your borrowing power, but also make repayments more comfortable later on.
- Reduce expenses: Consider keeping your outgoing payments down. This will free up more funds for home loan repayments.
Which is better, an interest-only or a principal and interest home loan?
There is no ‘best’ option when it comes to choosing between an interest-only or a principal and interest home loan. Both options are differently structured to offer separate solutions to home loan repayments.
With an interest-only loan, you will only make repayments on the interest charges accrued on your home loan amount, making your repayments lighter as they don’t include the principal amount. However, this will eventually result in a bigger overall payment of interest over time.
The opposite is true for a principal and interest home loan repayment option — your repayments will account for both the principal and interest amounts at the same time, resulting in bigger repayments but a lower overall interest cost.
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