02 Nov 2022

What Is the Function of Borrowing Power?

Borrowing Power

Borrowing power, or borrowing capacity, refers to the amount of money a lending specialist or mortgage broker will lend a borrower. Borrowing power largely depends on a wide variety of factors, including the following examples:

  • Income sources
  • Credit scores
  • Financial histories
  • Amount of dependents
  • Loan deposit amount
  • Loan terms
  • Loan interest rates
  • Currently owned assets and debt

Calculating an applicant’s borrowing power allows a lender to determine the applicant’s ability to repay the amount of money being borrowed. An applicant with a poor financial history and low credit score may be determined to be a high-risk borrower, which can also affect their borrowing capacity. Alternatively, an applicant with a good financial history and high credit score will generally be determined as a low-risk borrower and may find that their borrowing capacity increases. 

If your borrowing capacity is lower than expected, there are some methods you can explore that have the potential of increasing your capacity, including the following examples:

  • Decreasing any high credit card limits
  • Working on improving your credit score and financial history
  • Making consistent debt repayments
  • Cancelling any unused or unnecessary credit cards
  • Saving for a larger loan deposit
  • Exploring the addition of a guarantor to the loan in question

It is highly recommended for a potential borrower to speak with a mortgage broker or lending specialist about additional ways to increase borrowing power. 

If you are interested in learning more about loan applications, reach out to the Mortgage House professional lending specialists for specialised assistance. We look forward to working with you!

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