How Much Can You Borrow? Serviceability Calculator Explained

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Banks don’t lend based on what you can theoretically afford. They lend based on serviceability — a formula stress-tested against rate rises. Understanding it is the difference between getting your dream home or settling.

The Core Formula

“` Net income

Living expenses (HEM benchmark or declared)
Existing debt commitments
Stress-tested loan repayment (current rate + 3% buffer)
HECS/HELP repayment

= Surplus/shortfall “`

Banks want a positive surplus. APRA’s serviceability buffer of 3% above contract rate is what kills borrowing capacity for many.

What Counts as Income

PAYG salary: 100% if stable 6+ months
Overtime/penalty rates: 80% typically, sometimes less
Commission: 60–80% averaged over 12–24 months
Bonuses: Often 50–80%, must be regular
Investment income: Net rental at 70–80%, dividends at 50–80%

Cash-in-hand work doesn’t count. Period.

How Banks Calculate Living Expenses

HEM (Household Expenditure Measure): Statistical benchmark based on household composition + location + income. Conservative.

Declared expenses: You list everything specifically. Faster process but lender will scrutinize bank statements.

Banks use the higher of HEM or declared. So “lying low” doesn’t help — they assume HEM if you under-declare.

Existing Debts: The Killer

Most over-looked factor:

Credit card limits (not balances) — banks assume 2–3% of limit as monthly cost
BNPL (Afterpay, Zip) — counted as ongoing commitment
HECS/HELP — repaid based on income threshold
Personal loans — full repayment counts
Car loans/leases — full repayment counts

Closing a $10k credit card might increase borrowing capacity by $30–50k.

The Stress Test Math

For a $700k loan at 6% over 30 years:

Actual repayment: ~$4,200/month
Stress-tested at 9% (6% + 3% buffer): ~$5,630/month

You need to demonstrate you can service the $5,630 number — not the $4,200.

Realistic Borrowing Multipliers (2026)

Rough ballpark for owner-occupier, ~80% LVR:

Single, $80k income, no debts: ~$450–550k
Couple, $150k combined, no debts: ~$850k–1.05M
Couple, $200k, kids, car loan: ~$900k–1.1M
Self-employed, $120k after-tax: ~$500–650k

These vary wildly by lender. Some are 10–15% more generous.

Tactics to Increase Capacity

Reduce credit card limits (or close unused cards)
Pay off car loans before applying
Provide 12–24 months of consistent commission/overtime history
Apply with a co-borrower (spouse, even if not on income)
Use a broker who shops 25+ lenders

💡 Pro Tip: Your max borrowing capacity is rarely your wisest borrowing capacity. Comfort matters more than max.