Your borrowing capacity
The maximum amount you can borrow will be evaluated by your broker, who will look at your purchasing costs, as well as the size of your deposit and your loan repayments at the current interest rate. They will also factor in possible interest rate rises at a “stress” rate, which tends to be higher than the current interest rate. In determining your uncommitted monthly income, lenders will also look at your overall income and expenses, whilst also factoring in a margin for safety purposes.
The larger your uncommitted monthly income, the greater your capacity to borrow. Factors that can impact your borrowing capacity include:
- Loan value ratio, loan term and other loan product features
- Income and types of income – e.g. casual vs full-time
- Other loans, obligations and credit card limits
- Number of dependents
Calculating borrowing capacity
Lenders may calculate your borrowing capacity in different ways. So if your previous application was unsuccessful, it may be useful to check with a mortgage broker, especially if you feel that you have a good chance of getting a loan. In addition, there are numerous things that you can do to enhance your borrowing capacity, which include:
- Paying off outstanding term debts such as personal loans
- Paying off and closing any credit cards, store cards or overdrafts
- Decrease the limit on any other loans your are currently servicing
- Decide on a workable budget and stick to it to improve your savings record
