Question 1

How is borrowing capacity calculated in Australia?

Accepted Answer

Australian lenders use APRA serviceability guidelines. They assess your gross income, deduct tax and living expenses (HEM benchmark), subtract existing debt commitments, then calculate the maximum loan where your monthly repayments fit within the remaining amount. Critically, they use a higher "assessment rate" — your actual rate plus 3% (floor: 5.5%) — to stress-test your capacity if rates rise.

Question 2

What is the APRA serviceability buffer?

Accepted Answer

APRA (Australian Prudential Regulation Authority) requires all lenders to assess mortgage applications at an interest rate at least 3 percentage points above the loan's actual rate, with a minimum assessment rate of 5.5% p.a. This is called the serviceability buffer. It was raised to 3% in October 2021 (from 2.5%) to protect borrowers against rate increases.

Question 3

How does credit card debt reduce borrowing capacity?

Accepted Answer

Lenders assess credit card limits (not just balances) as potential liabilities. The standard practice is to apply 3.8% of your total credit card limit as a monthly commitment — regardless of whether you carry a balance. A $20,000 credit card limit reduces your assessed monthly income by approximately $760. Reducing or closing unused credit cards before applying can increase your borrowing capacity.

Question 4

Does HECS/HELP debt affect how much I can borrow?

Accepted Answer

Yes. HECS-HELP repayments are compulsory and calculated as a percentage of your income (between 1% and 10% depending on income level). Lenders treat them as a recurring liability. For a person earning $80,000 with a HECS debt, the compulsory repayment is approximately $5,600/year — which reduces assessed monthly available income by ~$467, meaningfully reducing borrowing capacity.

Question 5

Why does my borrowing capacity differ between lenders?

Accepted Answer

While all lenders must comply with APRA's serviceability buffer, they use different HEM benchmarks, count rental income differently (some use 70%, others 80%), treat different income types differently (e.g., overtime, bonuses, casual income), and apply different internal credit policies. A mortgage broker can identify which lender's policy suits your income profile best — potentially increasing your approved amount by $50,000–$100,000.

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