08 Oct 2021

Can I Rely on a Borrowing Capacity Calculator?

Borrowing Capacity Calculator

Borrowing capacity calculators are a quick and easy way to determine how large of a home loan you can afford to repay. Borrowing capacity calculators use the number of adults applying, their individual income, the number of dependents, and your current expenses to determine the absolute maximum amount you can borrow. Most online calculators use the same method lenders use when calculating your borrowing power. They are reliable and should give you a pretty accurate estimate of your borrowing power. However, if you use an online borrowing capacity calculator, you may notice there are a few items that may differ between lenders.

Online Borrowing Capacity Calculator Discrepancies 

Each lender uses the same basic equation when determining an individual’s borrowing power. However, individual lenders may have different ways the calculate or assess the following items:

  • Tax and Medicare Rates: your lenders may have errors in the tax rate they use to determine your borrowing power. If there are errors, they’re minor, so your borrowing power won’t be affected greatly. 
  • Living Expenses: lenders have their own way of estimating your living expenses. The way they estimate your living expenses can affect your borrowing power because they use the higher of their estimate and their calculator’s estimate. 
  • Debt Repayments: most lenders will use your actual rent and repayments on any loans or credit cards you may have when calculating your borrowing power. However, some will make sure you can afford your mortgage repayments even if you max out your credit cards. 
  • Mortgage Repayments: most lenders will use an assessment rate that is 2.5 to 3.5% higher than your actual mortgage interest rate to ensure you can still afford your repayments if your interest rate increases. However, each lender assesses this differently depending on the loan type.
  • Cash reserves: lenders may require you to have extra funds in your savings to reduce the chance of you not being able to afford your repayments.

At Mortgage House, we understand how complicated the home loan process can be, which is why we try to make it as simple as possible. Our borrowing capacity calculator is reliable and accurate, and our lending specialists will work with you to make sure the loan you choose fits your financial situation.

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