Estimate how much you might be able to borrow for a home loan based on your income and expenses.
Your Estimated Borrowing Power
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Understanding Your Home Loan Borrowing Power
Your borrowing power is the maximum amount a lender is likely to lend you for a home loan. It's not a guarantee of loan approval, but rather an estimation tool to help you understand your potential budget when house hunting. Lenders assess your borrowing power by carefully evaluating your financial situation, primarily focusing on your income, your existing financial commitments, and your living expenses.
How Borrowing Power is Estimated
This calculator uses a simplified model to estimate borrowing power, which is influenced by several key factors:
Annual Household Income: This includes your primary salary and any other regular income you receive, such as from investments or rental properties. Higher income generally means higher borrowing power.
Other Annual Income: This captures additional income streams that lenders may consider.
Total Annual Living Expenses: Lenders estimate how much you spend on essential day-to-day costs. This is crucial for assessing your ability to manage loan repayments after covering your needs.
Total Annual Debt Repayments: This includes all your existing loan repayments (personal loans, car loans, credit card minimums, etc.). Higher existing debt reduces your capacity for new debt.
Assumed Variable Interest Rate: Lenders use a stress test rate, often higher than the current advertised rate, to ensure you can still afford repayments if interest rates rise. This calculator uses a conservative rate to reflect this.
Loan Term: The number of years you plan to repay the loan. Longer terms can sometimes increase borrowing power by reducing monthly repayments, but they also mean paying more interest over time.
Your Deposit: While not directly increasing borrowing power itself, a larger deposit reduces the Loan to Value Ratio (LVR), which can influence lender confidence and loan terms.
The Calculation (Simplified)
The formula used here is a common approach, though actual lender calculations can be more complex and may involve specific proprietary software and different buffer rates.
1. Calculate Net Disposable Income: Net Disposable Income = (Annual Household Income + Other Annual Income) - Annual Living Expenses - Total Annual Debt Repayments
2. Estimate Maximum Monthly Loan Repayment: Lenders apply a "serviceability buffer" (often a percentage added to the assumed variable interest rate) and consider your Net Disposable Income. A common methodology is to determine what portion of your net disposable income can service a loan. This calculator simplifies this by using the net disposable income directly as the basis for a potential annual repayment capacity.
3. Calculate Maximum Loan Amount: Using the estimated maximum annual repayment capacity and an amortization formula with the assumed interest rate and loan term, the maximum loan amount is derived.
Monthly Repayment = (Net Disposable Income / 12) Maximum Loan Amount = Monthly Repayment * [ (1 - (1 + r)^-n) / r ]^-1 Where:
n = Total number of payments (Loan Term (Years) * 12)
The deposit is then added to this maximum loan amount to give an indication of the maximum property value you might be able to consider.
Important Considerations:
This is an estimate: Actual borrowing power can vary significantly between lenders due to different assessment criteria, risk appetites, and specific financial products.
Serviceability Buffers: Lenders add a buffer (e.g., 3%) to the actual interest rate to test your ability to repay if rates increase. This calculator uses the "Assumed Variable Interest Rate" directly for simplicity but it's designed to be a reasonable estimate.
Credit Score: Your credit history and score play a vital role. A good credit score can improve your chances of approval and securing better interest rates.
Lender Policies: Each bank or lender has its own specific policies regarding income verification, expense assessment, and acceptable debt levels.
Lifestyle: Lenders may adjust expense figures based on your stated lifestyle, family size, and other factors.
Loan-to-Value Ratio (LVR): The amount you borrow compared to the property's value affects your LVR. A higher deposit leads to a lower LVR, which is generally more favourable.
Always consult with a qualified mortgage broker or financial institution for a personalised assessment and to understand the specific loan products available to you.
function calculateBorrowingPower() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var otherIncome = parseFloat(document.getElementById("otherIncome").value);
var annualExpenses = parseFloat(document.getElementById("annualExpenses").value);
var existingDebts = parseFloat(document.getElementById("existingDebts").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var deposit = parseFloat(document.getElementById("deposit").value);
var resultElement = document.getElementById("borrowing-power");
var resultTitleElement = document.getElementById("result-title");
// Clear previous results and error messages
resultElement.textContent = "$0";
resultTitleElement.textContent = "Your Estimated Borrowing Power";
// Input validation
if (isNaN(annualIncome) || annualIncome < 0 ||
isNaN(otherIncome) || otherIncome < 0 ||
isNaN(annualExpenses) || annualExpenses < 0 ||
isNaN(existingDebts) || existingDebts < 0 ||
isNaN(interestRate) || interestRate <= 0 ||
isNaN(loanTerm) || loanTerm <= 0 ||
isNaN(deposit) || deposit < 0) {
resultTitleElement.textContent = "Please enter valid positive numbers for all fields.";
return;
}
// — Simplified Calculation Logic —
// 1. Calculate Total Income
var totalIncome = annualIncome + otherIncome;
// 2. Calculate Net Disposable Income (Annual)
var netDisposableIncomeAnnual = totalIncome – annualExpenses – existingDebts;
// Check if net disposable income is negative, which means they can't service any loan
if (netDisposableIncomeAnnual 0 && numberOfPayments > 0) {
// Formula for present value of an annuity (loan amount)
// PV = PMT * [ (1 – (1 + r)^-n) / r ]
maxLoanAmount = maxMonthlyRepayment * ( (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate );
} else if (maxMonthlyRepayment > 0 && monthlyInterestRate === 0) {
// Case for 0 interest rate (unlikely but for completeness)
maxLoanAmount = maxMonthlyRepayment * numberOfPayments;
} else {
// If rate or term is invalid, max loan is 0
maxLoanAmount = 0;
}
// Round to nearest dollar and ensure it's not negative due to calculation anomalies
maxLoanAmount = Math.max(0, Math.round(maxLoanAmount));
// 5. Calculate Total Borrowing Power (Max Loan + Deposit)
var totalBorrowingPower = maxLoanAmount + deposit;
// Format the result
resultElement.textContent = "$" + totalBorrowingPower.toLocaleString(undefined, { minimumFractionDigits: 0, maximumFractionDigits: 0 });
resultTitleElement.textContent = "Your Estimated Borrowing Power";
}