How a Mortgage Broker Helps You Calculate Borrowing Capacity by Factoring in Financial Commitments
When buying a home, knowing how much you can borrow is crucial. While income is a key factor, your financial commitments play a major role in determining how much a lender will approve. A mortgage broker helps you assess these commitments—such as existing loans, credit cards, and living expenses—so you can borrow within your means.
Understanding Borrowing Capacity
Borrowing capacity refers to the maximum amount a lender will allow you to borrow, based on your financial situation. Lenders don’t just look at how much you earn—they also consider your financial commitments to ensure you can comfortably afford your loan repayments.
A mortgage broker helps by evaluating these commitments, working out your serviceability, and identifying potential ways to improve your borrowing power.
Key Financial Commitments That Impact Borrowing Capacity
1. Existing Loan Repayments
If you have outstanding loans—such as a car loan, personal loan, or even another mortgage—lenders take these repayments into account when assessing your ability to take on more debt.
🔹 Example: Mark earns $120,000 per year but has a car loan with a monthly repayment of $800. A lender will deduct this amount from his available income when calculating his borrowing capacity.
A mortgage broker can help Mark understand how much this reduces his borrowing power and suggest ways to restructure or pay down his loan to increase it.
2. Credit Cards & Buy Now, Pay Later (BNPL) Services
Lenders don’t just look at how much you owe on a credit card; they assess the total limit, even if the card is paid off in full each month. The higher the limit, the more it reduces borrowing power. Similarly, services like Afterpay and ZipPay are treated as ongoing financial liabilities.
🔹 Example: Emma has a credit card with a $15,000 limit but only uses $3,000 of it. Lenders assume she could use the full $15,000 at any time, reducing the amount she can borrow.
A mortgage broker may recommend reducing her credit card limit or closing unused cards to improve her borrowing capacity.
3. HECS-HELP and Other Student Debts
For borrowers with student loans, lenders factor in the required repayments as a financial commitment. Even though HECS-HELP is deducted automatically through the tax system, it still impacts borrowing power.
🔹 Example: Alex has a HECS debt with a compulsory annual repayment of $5,000. Lenders treat this as an ongoing financial obligation, reducing how much he can borrow.
A broker helps Alex understand how this debt affects his borrowing capacity and whether additional repayments would make a difference.
4. Living Expenses
Lenders assess your living expenses to ensure you can afford loan repayments alongside your day-to-day costs. These include:
✔️ Rent (if applicable)
✔️ Groceries & utilities
✔️ Transport & fuel
✔️ Childcare & school fees
✔️ Entertainment & dining out
Lenders use a minimum benchmark for living costs (such as the Household Expenditure Measure), but if your actual expenses are higher, they will use the higher figure.
🔹 Example: James and Lisa have two children and spend $6,000 per month on living expenses, including school fees. Even though they earn a combined income of $180,000, their high expenses mean they can borrow less than another couple with the same income but fewer financial commitments.
A broker will review their expenses and suggest areas where they might adjust their spending to improve their borrowing power.
5. Existing Mortgage & Rental Commitments
If you already have a home loan or investment property, lenders consider these repayments. Even if you’re planning to sell before buying a new home, some lenders may still factor the current loan into their assessment.
Rental commitments are also taken into account, especially for first-home buyers who are renting while saving for a deposit.
🔹 Example: Sophie has an existing mortgage with a $2,500 monthly repayment. While she plans to sell her property, some lenders may include this repayment when calculating her borrowing capacity until the sale is finalized.
A broker can help Sophie navigate different lender policies to find the best outcome.
How a Mortgage Broker Helps You Factor in Financial Commitments
A broker takes a structured approach to calculating borrowing capacity, factoring in financial commitments to give you a realistic borrowing estimate.
Step 1: Collect Financial Details
The broker gathers details about your income, financial commitments, and living expenses.
Step 2: Apply Lender Criteria
Each lender has different rules on how they assess financial commitments. Brokers compare multiple lenders to find the most suitable option.
Step 3: Calculate Your Serviceability
Using lender calculators, a broker determines how much you can borrow based on your commitments and the lender’s stress-tested interest rate.
Step 4: Provide Strategies to Improve Borrowing Power
If financial commitments are reducing your borrowing capacity, a broker may suggest:
✔️ Paying down or consolidating debts
✔️ Reducing credit card limits
✔️ Refinancing existing loans for lower repayments
✔️ Adjusting discretionary spending
Final Thoughts
Understanding how financial commitments affect borrowing capacity is key to securing a home loan. A mortgage broker provides valuable insight into how existing debts, expenses, and liabilities impact your loan eligibility.
By working with a broker, you get a clear picture of what you can afford, along with strategies to improve your borrowing power. Whether it’s reducing financial commitments or choosing the right lender, a broker ensures you make informed decisions on your property journey.
Thinking about your borrowing capacity? A mortgage broker can help you navigate the numbers and secure the right loan for your needs.
