Borrowing Power Calculator

Borrowing Power Calculator

Estimate how much you might be able to borrow for a home loan based on your income, expenses, and lender assessment criteria. This calculator provides an indication and is not a guarantee of loan approval.

function calculateBorrowingPower() { var applicant1Income = parseFloat(document.getElementById("applicant1Income").value); var applicant2Income = parseFloat(document.getElementById("applicant2Income").value); var otherIncome = parseFloat(document.getElementById("otherIncome").value); var livingExpenses = parseFloat(document.getElementById("livingExpenses").value); var loanRepayments = parseFloat(document.getElementById("loanRepayments").value); var creditCardLimits = parseFloat(document.getElementById("creditCardLimits").value); var dependents = parseInt(document.getElementById("dependents").value); var assessmentRate = parseFloat(document.getElementById("assessmentRate").value); var loanTerm = parseFloat(document.getElementById("loanTerm").value); // Input validation if (isNaN(applicant1Income) || applicant1Income < 0) applicant1Income = 0; if (isNaN(applicant2Income) || applicant2Income < 0) applicant2Income = 0; if (isNaN(otherIncome) || otherIncome < 0) otherIncome = 0; if (isNaN(livingExpenses) || livingExpenses < 0) livingExpenses = 0; if (isNaN(loanRepayments) || loanRepayments < 0) loanRepayments = 0; if (isNaN(creditCardLimits) || creditCardLimits < 0) creditCardLimits = 0; if (isNaN(dependents) || dependents < 0) dependents = 0; if (isNaN(assessmentRate) || assessmentRate <= 0) { document.getElementById("borrowingPowerResult").innerHTML = "Please enter a valid Lender's Assessment Rate."; return; } if (isNaN(loanTerm) || loanTerm <= 0) { document.getElementById("borrowingPowerResult").innerHTML = "Please enter a valid Loan Term."; return; } // 1. Calculate Total Assessable Income (Annual) var totalAnnualIncome = applicant1Income + applicant2Income + otherIncome; // 2. Calculate Total Assessable Expenses (Annual) // Lenders often factor in a percentage of credit card limits as a monthly repayment (e.g., 3% or 0.8%) // Let's use 3% of the limit as a monthly repayment, then annualize it. var annualCreditCardDebtService = creditCardLimits * 0.03 * 12; // 3% of limit as monthly repayment, then annual // Note: In real scenarios, living expenses might be adjusted based on dependents by the lender's HEM (Household Expenditure Measure) // For this calculator, we use the user-provided living expenses. var totalAnnualExpenses = livingExpenses + loanRepayments + annualCreditCardDebtService; // 3. Calculate Net Assessable Income available for loan repayments (Annual) var netAssessableIncome = totalAnnualIncome – totalAnnualExpenses; if (netAssessableIncome 0) { borrowingPower = maxMonthlyRepayment * (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)); } else { // If interest rate is 0, borrowing power is effectively infinite for a fixed payment, but this is unrealistic. // For practical purposes, if rate is 0, we'll cap it or indicate an issue. // A 0% interest rate is not a realistic scenario for a borrowing power calculation. document.getElementById("borrowingPowerResult").innerHTML = "Lender's Assessment Rate must be greater than 0%."; return; } document.getElementById("borrowingPowerResult").innerHTML = "

Estimated Borrowing Power: $" + borrowingPower.toLocaleString(undefined, { minimumFractionDigits: 0, maximumFractionDigits: 0 }) + "

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Understanding Your Borrowing Power

Borrowing power, also known as borrowing capacity or serviceability, is the maximum amount of money a lender is willing to lend you for a home loan. It's a crucial figure to understand before you start house hunting, as it sets the realistic upper limit of your property budget.

Key Factors Influencing Borrowing Power:

1. Income: Your gross annual income (and that of any co-applicants) is the primary driver. Lenders assess your stable income sources, including salaries, wages, rental income, and some government benefits.
2. Expenses: Lenders scrutinize your regular outgoings. This includes living expenses (food, utilities, transport, entertainment), existing loan repayments (car loans, personal loans), and credit card limits. Even if you don't use your credit cards to their full limit, lenders often factor in a percentage of the limit as a potential debt repayment.
3. Number of Dependents: More dependents generally mean higher living expenses, which can reduce your borrowing capacity. Lenders often use benchmarks like the Household Expenditure Measure (HEM) to estimate these costs.
4. Lender's Assessment Rate (Stress Test Rate): This is a critical but often misunderstood factor. Lenders don't just assess your ability to repay at the current market interest rate. They add a buffer (e.g., 2-3%) to the current rate to ensure you can still afford repayments if interest rates rise. This "stress test" rate is what's used in the borrowing power calculation.
5. Loan Term: The longer the loan term (e.g., 30 years vs. 20 years), the lower your monthly repayments will be for a given loan amount, potentially increasing your borrowing power. However, a longer term also means more interest paid over the life of the loan.
6. Lender Policies: Each bank or financial institution has its own unique lending criteria, risk appetite, and serviceability calculators. This means your borrowing power can vary significantly from one lender to another.

How Lenders Assess Your Capacity:

Lenders use a serviceability assessment to determine your borrowing power. This typically involves:

• Calculating Net Assessable Income: Your total income minus all your assessed expenses.
• Applying a Serviceability Ratio: They determine what percentage of your net (or sometimes gross) income can realistically go towards loan repayments.
• Using the Assessment Rate: The maximum monthly repayment capacity is then used with the higher "stress test" interest rate and the loan term to calculate the maximum loan amount you can afford.

Important Considerations:

This calculator provides an estimate based on common lending principles. However, it's important to remember:

• It's an Estimate: Your actual borrowing power may differ based on a lender's specific policies, your credit history, and other individual circumstances.
• Seek Professional Advice: Always consult with a mortgage broker or financial advisor for a personalized assessment and to explore your options.
• Don't Borrow Your Maximum: Just because you can borrow a certain amount doesn't mean you should. Consider your comfort level with repayments and future financial goals.

Use this calculator as a starting point to understand your potential borrowing capacity and to help you plan your property journey more effectively.