If you’re looking to buy your first home, upgrade, or invest in property, one of the first things you’ll be thinking is: how much can I actually borrow? Your borrowing capacity is the golden ticket to your property dreams, and the ripper news is, there are heaps of ways to give it a good boost—no matter where you’re at in your home-buying journey. That’s why understanding how to maximise your borrowing capacity is so important. Here’s a straightforward guide on how to boost your borrowing power, combining Aussie common sense with savvy financial moves.
In this guide, you’ll find fair dinkum tips, insider tricks, and answers to common questions—all tailored for Aussies wanting to make the most of their home loan options.
What Is Borrowing Capacity?
Borrowing capacity (or borrowing power) refers to the utmost amount a lender is willing to lend you based on your financial circumstances. Lenders assess your income, expenses, debts, credit history, and the property type to calculate this figure. Since every lender uses slightly different criteria, your borrowing capacity can vary depending on who you approach.
Why Does Borrowing Capacity Matter?
Knowing your borrowing capacity helps you:
- Create a reasonable budget for your property hunt.
- Avoid overextending yourself financially
- Plan your savings and loan application effectively
How Interest Rates Impact Your Borrowing Capacity?
Interest rates play a huge role in determining how much you can borrow. When rates rise, your monthly repayments increase, which can reduce your borrowing capacity. Conversely, when rates drop, you might be able to borrow more for the same repayment amount.
For instance, a lower interest rate enables you to borrow more money while maintaining reasonable repayments if your salary permits $2,000 in monthly installments.
Let ISM Accountants guide you with expert financial advice tailored to your goals. We’ll help you understand how interest rate changes affect your borrowing power — and what you can do to stay ahead.
8 Proven Ways to Maximise Your Borrowing Capacity
If you’re thinking about buying a home or investing in property, knowing how to maximise your borrowing capacity can make a big difference. Your borrowing capacity is basically the amount a lender is willing to loan you, and boosting it means you can access better properties and home loan deals. Here are eight straightforward and effective ways to increase your borrowing power.
- Pay Down Existing Debts
One of the easiest ways to improve your borrowing capacity is by reducing your current debts. Lenders take into account everything you owe—credit cards, personal loans, and even buy-now-pay-later plans like Afterpay. By paying off or lowering these debts, you reduce your monthly repayments, which frees up more money for your home loan repayments and increases your borrowing capacity.
- Review and Cut Back on Living Expenses
Lenders will review your bank statements to examine your typical spending patterns. If you can trim back on non-essential costs like takeaway meals, subscriptions, or daily coffees, it shows lenders you have more disposable income to cover your loan repayments. This simple step can help boost your borrowing capacity.
- Increase Your Income Where You Can
Extra income from overtime, bonuses, or side gigs can count towards your borrowing capacity, provided you can prove it’s consistent. If you’re able to increase your earnings, even temporarily, it can make a real difference when lenders assess how much you can borrow.
- Save a Bigger Deposit
The less you need to borrow, the more you can contribute up front. In addition to lowering your loan balance, a greater deposit can save you thousands of dollars by preventing you from having to pay Lenders Mortgage Insurance (LMI). Lenders are more willing to give you a larger borrowing capacity as a result.
- Consider Applying for a Joint Loan
If you apply for a loan with a partner, family member, or close friend, lenders will combine your incomes and savings. This can significantly increase your borrowing capacity. Just remember, everyone on the loan is responsible for repayments, so make sure everyone’s on the same page.
- Check and Improve Your Credit Score
Your credit score is a key factor lenders use to decide how much to lend you. A good credit score shows you’re reliable, which can increase your borrowing capacity and get you better loan terms. Make sure to check your credit report, fix any mistakes, pay bills on time, and avoid applying for too much credit at once.
- Lower Your Credit Card Limits or Cancel Unused Cards
Even if you don’t owe anything, lenders consider your total available credit as potential debt. High credit limits on unused cards can reduce your borrowing capacity. Lowering these limits or cancelling cards you don’t use can improve your borrowing power.
- Choose the Right Loan Structure
Different home loans affect borrowing capacity differently. For example, interest-only loans might be assessed differently than principal and interest loans. Fixed or variable rates, offset accounts, and redraw facilities can also impact how lenders view your ability to repay. Chatting with a mortgage broker can help you pick the right loan to maximise your borrowing capacity.
Recommended Read: How to get a rental property in Australia?
2025 Lending Tips & Regulatory Updates
- ATO Clearance Certificates: If you’re self-employed, providing up-to-date ATO clearance certificates can strengthen your application.
- Foreign Resident Lending: New rules may affect non-resident borrowers; check current regulations before applying.
- Stress Test Adjustments: Lenders apply serviceability tests based on the latest official interest rates—keeping an eye on these helps you plan better.
Real-Life Example: How Reducing Debt Helps
Sarah earns $90,000 a year and has $10,000 in credit card debt. By paying off $5,000 before applying for a loan, her borrowing capacity increased by roughly $50,000, allowing her to consider better properties.
Pro Tips for Aussie Home Buyers
- Use an online borrowing power calculator for an estimate, but always get personalised advice from a mortgage broker.
- Keep your financial documents organised and up-to-date.
- Borrow within your means to ensure comfortable repayments and avoid financial stress.
You might also like: Rental Tips in Australia
Final Thoughts
Setting yourself up for a safe and prosperous home loan journey is more important than simply optimising your borrowing capacity. You can increase your borrowing power and move closer to acquiring your ideal home by managing your debts, keeping spending under control, and consulting a professional.
Ready to find out how much you can borrow? Contact the ISM Accountant to get personalised guidance and start your property journey with confidence.
Frequently Asked Questions About Borrowing Capacity in Australia
Australian lenders calculate your borrowing capacity by analysing your total income, monthly living expenses, existing debts, credit history, number of dependents, and the type of property you want to buy. They use this information to assess how much you can comfortably repay each month.
Yes, having a guarantor can significantly increase your borrowing capacity when applying for a home loan in Australia. A guarantor—often a close family member—offers additional security to the lender by covering part of the loan if you default. This can allow you to borrow a larger amount or reduce the size of your required deposit. However, guarantors take on financial risk, so it’s important to fully understand the obligations before proceeding.
Changing jobs can impact your borrowing capacity because lenders prefer applicants with stable and consistent employment history. If you have recently started a new job or switched industries, some lenders may require you to have worked in your current role for a minimum period (usually 3 to 6 months) before approving your loan.
Many Australian lenders will consider regular bonuses and overtime payments as part of your income when calculating borrowing capacity, but only if you can demonstrate a consistent history of receiving these payments—typically over the past 12 to 24 months. Irregular or one-off bonuses are less likely to be counted. Providing payslips and tax returns as evidence will help strengthen your application.
