Find out your estimated maximum borrowing capacity based on your income, expenses, and existing debts. Australian lenders assess your capacity using a stressed interest rate (typically 3% above the actual rate) to ensure you can handle rate rises.
When you apply for a home loan, the lender does not simply look at your income. They run a detailed assessment called a serviceability test. This involves taking your gross income, subtracting your living expenses (using either your declared expenses or the Household Expenditure Measure benchmark — whichever is higher), subtracting any existing debt commitments, and then calculating the maximum loan amount you could service at a stressed interest rate.
The stressed rate is typically the actual interest rate plus a 3% buffer. With current variable rates around 6.0–7.0%, lenders assess your capacity at roughly 9.0–10.0%. This is mandated by the Australian Prudential Regulation Authority (APRA) to ensure borrowers can handle future rate increases.
Lenders count your base salary, regular overtime, bonuses (usually at a discount), rental income (typically 80% of gross rent), and any government payments. If you have a partner applying jointly, both incomes are included. Self-employed borrowers typically need two years of tax returns, and lenders average the income across those years.
The Household Expenditure Measure (HEM) is a baseline spending benchmark developed by the Melbourne Institute. It estimates minimum living costs based on household size, location, and income bracket. Even if you declare lower expenses, the lender will use HEM as a floor. For a single person with no dependants, HEM is approximately $1,600 per month. Each additional dependant adds roughly $400 per month to this figure.
Credit cards, personal loans, car loans, HECS-HELP debt, and buy-now-pay-later accounts all reduce your borrowing capacity. Credit cards are assessed on the full limit (not the balance) — even a $10,000 card with zero balance reduces your capacity by approximately $40,000–$50,000. Closing unused credit cards before applying is one of the quickest ways to boost your borrowing power.
Each dependant increases your assessed living expenses and reduces borrowing capacity. Two children might reduce your maximum loan by $80,000–$120,000 compared to a household with no children, depending on the lender's HEM assumptions.
Your maximum borrowing capacity is not a recommendation — it is a ceiling. Borrowing to your absolute maximum leaves no room for rate increases, income disruption, or unexpected expenses. A safer approach is to target repayments at 25% or less of your gross household income, leaving buffer for the unexpected. Use our mortgage stress calculator to check where your planned repayments sit relative to the 30% threshold.
Once you know your borrowing capacity, use our scenario pages to see what repayments look like at different loan amounts.
$500K Mortgage Repayments →