Question 1

What is borrowing power?

Accepted Answer

Borrowing power (or borrowing capacity) is the estimated amount of money a lender may be willing to lend you for a home loan. It is based on your income, expenses, debts, and other financial factors, as well as the lender's criteria and current interest rates.

Question 2

How is borrowing power typically calculated by lenders?

Accepted Answer

Lenders calculate borrowing power by assessing your ability to service a loan. They look at your net income, subtract living expenses and existing debt repayments, and then apply a serviceability interest rate (often higher than the actual rate) and other criteria to determine the maximum loan amount you can afford.

Question 3

What key factors affect my borrowing power?

Accepted Answer

Key factors include your gross and net income, your regular living expenses, existing debts (like credit cards, personal loans, car loans), the number of dependents you have, the loan term, current interest rates, and the lender's specific lending policies and credit assessment criteria.

Question 4

How can I potentially improve my borrowing power?

Accepted Answer

You might improve your borrowing power by reducing your existing debts, lowering your credit card limits, cutting back on discretionary spending, increasing your income, saving a larger deposit, or looking for a loan with a longer term or lower interest rate. It's best to speak with a mortgage broker or lender for personalized advice.

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