Top Strategies to Lift Your Borrowing Capacity

Your borrowing capacity is the most a lender will let you borrow, and it is usually lower than the figure you'd like to see.

If you work in healthcare, your pay can include base salary, shift loadings, overtime and on-call payments. Lenders may treat each of these differently, so a quick online guess can miss the mark. Here's how to work out your number and lift it before you apply.

How Is Borrowing Capacity Calculated?

Lenders work out your borrowing capacity by comparing your income with your living costs, debts and commitments, then testing whether you could still afford repayments if rates rose. The result is the maximum loan amount they will consider.

The main inputs are your income, your declared living expenses, the number of dependants, your existing debts and your credit card limits. The loan term and the size of your deposit also play a part. Lenders test your repayments at a rate higher than the one you will actually pay, so your capacity is always lower than what you could manage on today's rate alone.

Our borrowing capacity page explains the inputs in more detail, and a broker can run your numbers across several lenders at once.

Why Do Healthcare Workers Get Different Results From Different Lenders?

Two lenders can look at the same payslips and reach different answers, because each has its own rules for how much of your extra income counts. Overtime, penalty rates, allowances and casual or locum work are the areas where results vary most.

A full-time nurse on a steady base wage may be assessed quite differently from a doctor who mixes salaried shifts with locum work. That is why checking one lender, or one online calculator, only gives you part of the picture. We cover how this works for your profession on our home loans for medical and health professionals page.

The trade-off is time. Comparing several lenders means gathering your payslips and statements early, so it pays to be organised before you begin.

Calculating Home Loan Repayments Before You Borrow

Calculating home loan repayments before you apply shows you whether a loan amount fits your budget, not just whether a lender will approve it. Approval and comfort are two different things.

As an example, take a couple who both work in hospital roles and want to borrow $600,000. At an illustrative rate of 6.75% p.a. over 30 years on principal and interest, repayments come to about $3,892 a month. That rate is only an example, and your actual rate will depend on your deposit, your lender and the product you choose.

They might find the lender would approve more than $600,000, but the monthly repayment leaves little room once childcare and rostered-shift costs are added. They decide to borrow to a figure they can live with, not the maximum on offer. The outcome is a loan they can service with a buffer if their hours or rates change. You can test your own figures with a repayment calculator, then check them against what a lender would assess.

What Can You Change to Improve Borrowing Capacity?

The fastest ways to improve borrowing capacity are to reduce debts, lower credit card limits and cut back spending that shows up on your statements. Each one reduces the commitments a lender subtracts from your income.

Credit cards are the most common surprise. Lenders typically assess the card limit, not the balance you owe, so an unused card still counts against you. Consider a buyer with two cards totalling a $20,000 limit who rarely uses them. They close one, lower the limit on the other and clear a small personal loan before applying. When the broker reran the numbers, the assessed capacity rose enough to cover the loan amount they were aiming for.

The trade-off is that closing cards and paying off debts uses cash you might have wanted for your deposit. A few months of tidy statements can also help, since lenders review your spending habits closely.

Does Your Deposit and Loan to Value Ratio Matter?

Yes, your deposit sets your loan to value ratio (LVR), which is the loan as a percentage of the property's value. A lower LVR often opens up more lenders and may mean lower costs.

With a smaller deposit, Lenders Mortgage Insurance (LMI) may apply depending on the lender and your LVR. LMI is an added cost, so it is worth asking for a quote before you commit to a purchase. If you are buying your first place, our first home buyers page outlines the support that may be available.

Using an Offset Account Without Shrinking Your Capacity

An offset account is a transaction account linked to your home loan, and the balance in it reduces the interest you are charged. It can suit shift workers who park their pay there between bills.

The trade-off is that loans with an offset account may carry a higher rate or an annual fee, depending on the lender. It pays off most when you keep a meaningful balance in the account. Ask your broker to compare a package with an offset account against one without it, using your own savings habits.

Getting Pre-Approval Before You Start Looking

Home loan pre-approval gives you an indication of how much a lender is willing to lend before you find a property. It lets you search with a realistic price range.

Pre-approval is not a final offer. The lender will still check the property and your circumstances when you lodge the full home loan application, and it can lapse if you take too long to find a home. If you already have a loan, a loan health check can show whether your current setup is holding back your capacity.

We work with the Gympie and Sunshine Coast communities, and we know that healthcare rosters don't always fit business hours. Call one of our team or book an appointment at a time that works for you, and we will work out your borrowing capacity together.

Frequently Asked Questions