There is no single answer to how much you can borrow, because every lender runs its own serviceability calculation. In simple terms, the lender works out how much income you have left each month after living expenses and existing debts, then checks whether that surplus covers the new loan at a higher test rate. Under APRA guidance that test rate is at least 3 percentage points above the loan’s interest rate.
The inputs matter as much as the formula. Lenders may count only part of your bonus, overtime or rental income, assess credit cards at their full limit and add costs for each dependant. From 1 February 2026, banks also face a cap on how much high debt-to-income lending they can write.
How do lenders work out how much you can borrow?
Lenders in Australia have responsible lending obligations. ASIC’s guidance explains that credit providers must make reasonable inquiries about your financial situation, verify it and not provide a loan that is unsuitable for you (ASIC, checked October 2026).
In practice, most lenders follow the same broad steps:
- Work out your assessable income after tax.
- Subtract your living expenses, using the higher of your declared expenses or a benchmark.
- Subtract repayments on existing debts, including credit card limits.
- Calculate repayments on the new loan at an assessment rate with a buffer.
- Check that there is still a surplus left over.
- Apply any extra policy limits, such as debt-to-income caps.
The largest loan that still leaves a surplus is roughly your borrowing capacity with that lender.
What income do lenders count?
Not every dollar you earn is treated equally. Lenders often apply “shading”, which means counting only part of some income types.
Base salary and wages
Stable PAYG base salary is usually counted in full, subject to probation and employment history policies.
Overtime, bonuses and commission
Variable income is commonly shaded or averaged over a longer history. Some lenders need a longer track record before they count it at all.
Rental income
Lenders usually count only part of rental income to allow for vacancies and costs.
Self-employed income
Self-employed borrowers are generally assessed on tax returns and notices of assessment, and some lenders add back certain expenses. Our guide to how banks calculate self-employed income explains this in detail.
Which expenses and debts reduce your borrowing power?
Living expenses and dependants
Lenders compare your declared living expenses with a benchmark, such as the Household Expenditure Measure, and generally use whichever is higher. Each dependant adds to your assessed costs, so a larger household usually means a lower borrowing limit on the same income.
Existing debts
Car loans, personal loans, buy now pay later accounts and HECS-HELP repayments all reduce the surplus available for a new home loan.
Credit card limits
Lenders generally assess a credit card as if the whole limit were in use, even if you clear the balance each month. A card you never use can still reduce what you can borrow. Moneysmart explains how your credit history and report are used when you apply for credit (Moneysmart, checked October 2026).
What is the APRA serviceability buffer?
APRA’s prudential practice guide APG 223 says lenders should assess new loans at an interest rate at least 3 percentage points above the loan’s rate (APRA APG 223, checked October 2026). The buffer is there to check you could still manage repayments if rates rose.
Because the buffer sits on top of the actual rate, any change in interest rates flows through to borrowing power. The Reserve Bank raised the cash rate target by 0.25 percentage points to 4.60% on 30 September 2026 (RBA, checked October 2026). If lenders pass that on, the assessment rates they use rise too, which tends to reduce how much new borrowers can borrow.
Illustrative example: how the buffer changes the repayment test
This example only shows the buffer arithmetic. It is not a borrowing-capacity calculation and not any lender’s output.
| Item | Actual rate | Assessment rate |
|---|---|---|
| Interest rate | 6.00% | 9.00% (6.00% + 3 points) |
| Loan amount | $600,000 | $600,000 |
| Term and type | 30 years, principal and interest | 30 years, principal and interest |
| Monthly repayment | about $3,597 | about $4,828 |
The lender checks whether your budget can absorb roughly $4,828 a month, about $1,230 more than you would actually pay at 6.00%. That gap is why borrowing power is lower than many people expect from looking at actual repayments. You can test different rates and loan sizes in our mortgage repayments calculator.
How does the debt-to-income limit affect you?
Debt-to-income (DTI) compares your total debt with your gross annual income. APRA activated a DTI limit from 1 February 2026: banks can write no more than 20% of new owner-occupier lending, and 20% of new investor lending, at a DTI of six times or more (APRA, checked October 2026).
For example, someone earning $150,000 a year with $900,000 of total debt has a DTI of 6 ($900,000 divided by $150,000). This is arithmetic only. A DTI of six or more is not banned, but banks have limited room for these loans, so they may be more selective. Your total debt includes existing loans, not just the new mortgage.
What raises or lowers your borrowing power?
| Usually raises borrowing power | Usually lowers borrowing power |
|---|---|
| Higher, stable base income | More income from shaded sources such as bonuses |
| Lower declared living expenses (if realistic) | More dependants |
| Paying off or closing personal and car loans | Existing loans and buy now pay later accounts |
| Reducing or closing credit card limits | Large unused credit card limits |
| A longer loan term, where suitable | Higher interest rates and assessment rates |
| Adding a co-borrower’s income | A high existing debt-to-income ratio |
| Choosing principal and interest over interest-only | Interest-only periods, which can lower the assessed amount |
Moneysmart’s guide to choosing a home loan covers how loan features and repayment types affect cost over time (Moneysmart, checked October 2026).
Why do lenders give different borrowing amounts?
Each lender has its own calculator, benchmarks and policy settings. One may count 100% of your overtime and another only part of it. One may use a different expense benchmark or treat HECS-HELP differently. Because of this, it is common for the same borrower to get different results. Comparing lender policy, not only interest rates, can make a real difference.
How can you increase how much you can borrow?
- Close credit cards you do not need and reduce the limits on the rest.
- Pay off small debts such as personal loans or buy now pay later balances where it makes sense.
- Keep three or more months of clean bank statements with consistent savings.
- Document all of your income, including allowances and any regular overtime.
- Review your actual living expenses so your declaration is accurate.
- Avoid applying for new credit before your home loan application.
- Ask about lenders whose policies suit your income type.
If you are buying your first home, our first home buyer loan checklist for NSW shows where borrowing power fits in the wider process.
When should you use a borrowing power calculator?
Use a calculator early to get a realistic range before you start looking. Our borrowing power tool gives an estimate based on your income, expenses and debts. Remember that an online estimate cannot apply every lender’s policy, so get a proper assessment before making offers. Moneysmart’s mortgage calculator is also useful for testing repayments.
For a fuller picture of ongoing costs, read our guide to home loan repayments in Australia. All lending is subject to lender approval, and lending criteria, fees and charges apply. To compare lenders and loan structures, see our home loan options.