How Much Can I Borrow? Borrowing Capacity in Australia (2026 Worked Example)

Every Australian lender uses the same skeleton calculation for borrowing capacity — income minus assessed expenses minus existing debts minus the proposed loan repayment at APRA's buffered rate must be greater than zero. This guide walks the maths step by step, runs a full worked example, and answers the questions people Google most: "How much can I borrow on $100,000?", "What is HEM?", "Why do two lenders give different numbers?"

The mechanics are universal. The differences sit in the dials — and that's where a single income can produce a $200,000 swing between lenders.

The 30-second summary

• Lenders use Net Income Surplus (NIS): assessed income − expenses − debts − proposed repayment ≥ 0.
• The proposed repayment is calculated at the offered rate plus APRA's 3% buffer (so a loan at 6.0% is tested at 9.0%).
• Living expenses are floored at the HEM benchmark — understating doesn't lift your number.
• Every $1,000/month of ongoing commitment costs roughly $119,000 of borrowing capacity at a 9.5% assessment rate over 30 years.
• Two lenders can swing the same applicant by $150,000–$250,000 purely through different income-shading, commitment-factor, and HEM-tier choices.
• Credit card limits count, not balances. A $20,000 limit reads as a $600–$760/month expense.

The formula

Assessed gross income
− Income tax & Medicare levy
− Living expenses (HEM or stated, whichever is higher)
− Existing debt commitments (HECS, cards, BNPL, personal loans)
− Proposed loan repayment at (offered rate + 3% APRA buffer)
= Net Income Surplus (must be ≥ 0)

The maximum loan is the largest principal that still produces a non-negative NIS. Change any input — extra income, a closed credit card, a paid-off personal loan — and the maximum moves.

What lenders' headline calculators leave out is the size of the assumptions:

• Income shading — only 80% of overtime, bonus or commission counts at most lenders.
• Expense flooring — HEM beats your stated number if HEM is higher.
• 3% rate buffer — sometimes more for investment loans.

All three reduce the answer.

The HEM (Household Expenditure Measure)

HEM is the benchmark Australian lenders use as a floor on living expenses. It's published by the Melbourne Institute, derived from the ABS Household Expenditure Survey, and lenders adjust it by:

• Income tier — higher earners are assumed to spend more
• Household composition — single, couple, +1 dependant, +2, etc.
• Postcode — capital city HEMs are higher than regional

If your stated expenses are below your HEM tier, the lender ignores your number and uses HEM. That's why understating discretionary spending doesn't lift borrowing capacity — it just gets overridden.

For a couple earning $200,000 combined with two children in a metro postcode, HEM typically lands around $5,500–$6,500/month. If you genuinely spend less, document it — six months of bank statements showing the lower run-rate — and a broker can sometimes negotiate a lender that accepts a stated number below the published HEM tier.

The 3% APRA serviceability buffer

Since October 2021, APRA has required lenders to assess loan serviceability at the actual offered rate plus a 3% buffer. A loan offered at 6.0% is tested at 9.0%.

The buffer matters because it amplifies the effect of every other input. On a $700,000 loan over 30 years:

Rate	Monthly repayment
6.0% (offered)	~$4,200
9.0% (assessed)	~$5,640
Difference	~$1,440/month

That $1,440/month difference has to fit inside your NIS. It's why a small income lift or a debt payoff can unlock a disproportionately large jump in borrowing power — it's the assessed repayment at the buffered rate, not the actual repayment, that's binding.

Some lenders use a tighter 2% buffer for refinancers swapping like-for-like to reduce mortgage prisoners. If you're rate-shopping an existing loan, ask.

A full worked example — $120,000 single applicant

Take a single applicant, no dependants, applying for a 30-year loan at a 6.5% offered rate. That's a 9.5% assessed rate once APRA's 3% buffer is added. These are the exact steps the borrowing-capacity calculator runs.

Step	Figure
Gross annual income	$120,000
Less ~20% for tax & Medicare (simplified estimate)	−$24,000
Assessed net income	$96,000
Less living expenses ($2,500/month)	−$30,000
Annual surplus available for repayments	$66,000
Monthly surplus	$5,500
Maximum loan — present value of $5,500/month over 30 years at 9.5%	≈ $654,000

Now change one thing: add a single $1,000/month car loan and leave everything else identical. The annual surplus falls to $54,000 ($4,500/month). The maximum loan drops to ≈ $535,000.

That one modest repayment erased about $119,000 of borrowing power — because the calculation discounts the lost $1,000/month over the full 30-year term at the buffered 9.5% rate.

The rule of thumb worth remembering: every $1,000/month of ongoing commitment costs roughly $119,000 of borrowing capacity (the present-value factor at a 9.5% assessment rate over 30 years is about 119×).

That single relationship explains most "why can't I borrow more?" questions. A $700/month personal loan, a $15,000 credit card limit assessed at 3.8%, or a novated lease each quietly removes tens of thousands of dollars of capacity before income is even considered.

How much can I borrow on $80k, $100k, $150k, $200k?

Indicative single-applicant borrowing capacity at the same assumptions — 6.5% offered rate (9.5% assessed), 30-year term, no dependants, no other debts, $2,000/month of living expenses (or HEM, whichever is higher):

Gross income	Indicative max loan	After a $1,000/m car loan
$80,000	~$420,000	~$300,000
$100,000	~$555,000	~$435,000
$120,000	~$650,000	~$535,000
$150,000	~$830,000	~$715,000
$200,000	~$1,070,000	~$950,000

These are directional. A real lender quote will land within roughly ±10–20% of these figures depending on which lender's dials apply. Treat the calculator's output as a ceiling for property-search budgeting, then get formal pre-approval before making offers.

Why two lenders give different numbers for the same applicant

The framework above is universal; the dials inside it are not. Every lender sets its own:

• Income shading — 80%, 90% or 100% of variable income (overtime, bonus, commission, rental income) counts
• Commitment factor — credit card limits assessed at 3.0%, 3.8% or 5% of the limit per month
• HEM tier — different lenders use different HEM tier maps for the same income/postcode
• Investment property treatment — some lenders haircut rental income by 80%, some by 75%, some net it against expected expenses

The combined effect can swing a borrowing capacity estimate by $150,000–$250,000 between lenders for the same applicant. This is the structural reason brokers add value — they know which lender's policy quirks are most favourable for the income profile in front of them.

If you're borrowing for an investment property, the rental income lifts your assessed capacity, but the after-tax holding cost is a separate calculation. Model the cashflow with the negative gearing calculator, and if you'll hold cash against the loan, compare paying down versus parking in an offset account.

How existing debts affect your capacity

Every dollar of monthly commitment is a dollar that can't service the new home loan. The biggest hits in 2026:

HECS-HELP — full annual repayment counted. Under the marginal system that started 2025–26, repayments are calculated only on income above $67,000:

Repayment income	Rate above threshold
$67,001 – $125,000	15% of income above $67,000
$125,001 – $179,285	$8,700 + 17% above $125,000
Above $179,285	10% of total repayment income

A $90,000 salary owes ($90,000 − $67,000) × 15% = $3,450/year, about $288/month — far less than the old flat-rate system. Lenders count this as an expense and it typically reduces capacity by $40,000–$70,000. The debt balance itself doesn't matter, only the repayment. From 1 June 2025, a one-off 20% reduction was applied to all outstanding HELP balances.

Credit cards — typically 3.0–3.8% of the limit, not the balance. A $20,000 limit reads as a $600–$760 monthly commitment with a zero balance.

Personal loans, car finance, novated leases — full contracted repayment counted, dollar-for-dollar.

BNPL (Afterpay, Zip, Klarna) — treatment varies; some lenders look at usage history, others at limit, others at recent monthly average. Trending stricter.

The fastest tactical move before applying: close any credit cards you don't actively use, and lower the limits on the ones you keep. A cleanup of $30,000 in unused credit limits can lift borrowing capacity by $90,000+.

How to increase your borrowing power

In rough order of speed-to-impact:

1. Reduce credit card limits — fastest. Lower limits = lower assessed commitment.
2. Pay down and close BNPL accounts — second fastest, especially with conservative lenders.
3. Discharge personal loans and car finance — direct dollar-for-dollar capacity lift.
4. Lengthen the loan term to 30 years — lower assessed monthly repayment.
5. Demonstrate sustained expense reduction — six months of statements showing tighter spending lets a broker push back on HEM.
6. Lift documented variable income — bonus letters, two years of consistent overtime, formalised rental agreements.
7. Shop the right lender — broker territory; the structural lender-by-lender dial differences described above.

Borrowing as a couple vs as a single applicant

Joint applications combine both incomes, both debt loads, and apply a household HEM (typically 1.4–1.6× a single HEM, not 2×). The arithmetic usually means:

• A couple borrows more than each could alone, but less than 2× what one could
• The lower-earning partner's HECS, credit limits and debt load weigh on the joint application even if "in one name only" (it isn't — both credit files are pulled)
• Income from one partner can sometimes be used to service a mortgage in the other's name on a "single-applicant joint-borrower" structure, but lenders are increasingly cautious here

Run both scenarios in the calculator to see the trade-off for your specific income split.

The role of a guarantor

A guarantor home loan uses a third party — almost always a parent — to pledge equity in their existing property as additional security. The mechanics:

• The guarantor's income is not usually added to yours; only their property equity is offered as additional security
• The guarantee is typically limited to a portion of the loan (commonly 20% of the property value), not the full loan
• The guarantee is released once your loan-to-value ratio drops below 80% on the strength of repayments and capital growth
• The guarantor must demonstrate they can service the guaranteed amount if you default — so retired parents on pensions often cannot act as guarantors

This can eliminate LMI even when your deposit is below 20%, and let you borrow up to 100% (or more, if stamp duty is capitalised) of the purchase price. It's the structural mechanism that moves first home buyers off the LMI cliff in capital cities.

What the calculator doesn't include

The calculator above gives you the maximum loan a lender will approve. It does not subtract:

• Stamp duty — use the state-by-state stamp duty calculator for current rates and concessions
• LMI — applies above 80% LVR; can be capitalised but adds tens of thousands to lifetime interest
• Acquisition costs — conveyancing, building and pest, lender fees; total ~$3,000–$5,000 in most cases
• First Home Owner Grants — state-based; can offset stamp duty or contribute to deposit

Use the property buying costs calculator for the full settlement bill, then subtract from your savings to work out the cash you can actually contribute as deposit. Your deposit then drives the LVR, which determines whether LMI applies, which determines the rate band the lender offers — all of which feeds back into the maximum loan.

Pre-approval vs the calculator

A calculator gives an indicative ceiling based on the inputs you enter. Pre-approval is a lender's formal commitment based on their verified read of those same inputs — payslips, bank statements, credit file, employment verification, debt confirmations.

Two things often happen between calculator and pre-approval:

1. HEM bites harder than expected because the lender's tier for your income/postcode/composition is higher than your stated number.
2. Variable income is haircut — overtime that averaged $1,000/month shows up as $800/month assessed.

Expect the formal pre-approval number to land 5–15% below the calculator estimate in most cases. If it lands further below, the lender's specific dials are working against you — a broker can often place the same application with a lender whose dials are friendlier.

Frequently asked questions

The FAQs above cover the most common borrowing-capacity questions — salary scenarios, APRA buffer, lender variation, HECS treatment, ways to increase capacity, joint vs single, and the relationship with stamp duty and LMI. For the underlying step-by-step mechanics, see the borrowing capacity calculator page and the home loan interest guide.

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This article provides general information current at 30 June 2026 and does not constitute personal financial advice. Borrowing capacity depends on a lender's specific assessment of your verified circumstances. Speak to a licensed mortgage broker or your lender directly before making property decisions.