1. What is Borrowing Capacity?

Borrowing capacity refers to the maximum amount of money a lender is willing to loan to an individual based on their financial situation. In Australia, this calculation considers assessable income, lending factors, and existing financial commitments.

2. How Does the Calculator Work?

The calculator uses the borrowing capacity formula:

Where:

• \( Assessable\ Income \) — Your total verifiable income ($)
• \( Factor \) — Lender's assessment multiplier (typically 5-7)
• \( Commitments \) — Your existing financial obligations ($)

Explanation: The formula calculates how much you can borrow by multiplying your income by a lender-specific factor, then subtracting your existing financial commitments.

3. Importance of Borrowing Capacity Calculation

Details: Understanding your borrowing capacity is essential when planning major purchases like property investments. It helps you determine what you can afford and prevents over-commitment financially.

4. Using the Calculator

Tips: Enter your total assessable income in dollars, the lender's assessment factor (typically between 5-7), and your total existing financial commitments. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as assessable income?
A: Assessable income typically includes salary, wages, rental income, investment returns, and other regular verifiable income sources.

Q2: How is the factor determined?
A: The factor varies by lender and is based on their risk assessment policies, typically ranging from 5 to 7 times your income.

Q3: What financial commitments should be included?
A: Include all ongoing financial obligations such as loan repayments, credit card limits, child support, and other regular financial commitments.

Q4: Does this calculation guarantee loan approval?
A: No, this is an estimate only. Lenders consider additional factors including credit history, employment stability, and property valuation.

Q5: How often should I reassess my borrowing capacity?
A: You should reassess whenever your financial situation changes significantly - after pay increases, taking on new debt, or changes in interest rates.