Why a bank's own calculator flatters you
Type your income into a lender's website and it will tell you a number. Apply for that number and you will not get it. The public calculator is a marketing tool: it takes your income at face value, takes your word on spending, ignores the credit cards you never use, and prices the loan at today's rate. The assessment that actually decides your application does none of those things.
This calculator runs the assessment version. It is deliberately less flattering, because the useful number is the one that survives the application, not the one that gets you to fill in a lead form.
The five things a real assessment does differently
- It stresses the rate. The loan is tested at your rate plus a buffer — three percentage points under APRA's rules, with an absolute floor of 5.5% so a very cheap product cannot produce an implausible answer. A loan taken at the bottom of a rate cycle has to survive the top of it.
- It floors your living costs. Your declared spending is compared against a household benchmark and the higher figure is used. Nobody's self-reported budget survives contact with a credit file, and lenders stopped pretending otherwise years ago.
- It counts credit cards on the limit. An unused $15,000 card is an unused $15,000 card right up until the day it is not, so it is assessed at roughly 3.8% of the limit per month whether you owe anything or not.
- It takes the lower of your years. For self-employed income, the assessment uses the lower of your latest year and your two-year average. One good year is not a trend, and the borrower who most needs it to count is the one it will hurt most.
- It tests debt-to-income, not just surplus. Total debt against gross income has a ceiling around six times. This is the wall a high earner hits long before their monthly surplus runs out, and it is why a big salary does not borrow without limit.
The bit that matters if you work for yourself
Every mainstream calculator asks for “income” and quietly means gross. If you are a sole trader, contractor or freelancer, your gross contains money that is already owed to the tax authority. It is sitting in your account, and it is not yours.
Borrowing against it is how people end up with a repayment that fits perfectly for three quarters and then collides with a tax bill. The tax reserve field here comes out of income before anything else is calculated, which is why the answer will usually be lower than the number a bank's website gave you. Set it to zero if you are employed and taxed at source.
A worked example
A sole trader earning $90,000 a year, reserving 25% for tax, spending $2,800 a month, with no other debts and an $80,000 deposit, looking at a home over 30 years at 6%.
- Income after the reserve: $90,000 × 0.75 ÷ 12 = $5,625 a month
- Less living costs of $2,800 leaves a surplus of $2,825
- Tested at 6% + 3% = 9%, not at 6%
- That surplus services roughly $351,000 over 30 years at 9%
- The same surplus at 6% would have supported about $471,000 — the buffer alone costs $120,000 of borrowing power
The gap between those last two figures is the single most useful thing on this page. It is not a rounding difference; it is a quarter of the loan.
What to do when the number is too small
The calculator names which of the three walls you hit, because the answer changes completely depending on which one it is. Limited by income means the surplus is the binding constraint and the levers are earning more or committing less. Limited by deposit means the loan would service comfortably and saving moves you further than earning does. Limited by debt-to-income means you could service more but the ratio ceiling stops you, and the fix is reducing existing debt rather than finding more income.
The fastest lever for most people is the one that costs nothing: closing or reducing credit card limits you do not use. A $20,000 limit sitting at zero still consumes about $760 a month of assessed capacity, which is a meaningful slice of a loan.
“How much can I borrow?” — what serviceability really means
Borrowing capacity is not a multiple of your income, though almost every advertised mortgage affordability calculator presents it that way. A lender's own assessment asks a harder question: what is left over each month, after a deliberately pessimistic view of your costs, and does that surplus cover the repayment at a rate higher than the one you are being offered?
That test is called serviceability, and four adjustments do nearly all the work in it.
- The stress test. Your home loan is assessed at a buffered rate, not the product rate — historically around three percentage points higher. On a 25-year term that raises the repayment being tested by roughly a third before anything else is counted.
- A benchmark floor for living costs, applied when your declared spending is implausibly low. Understating expenses achieves nothing, because the higher of the two figures is used.
- Credit limits rather than balances. An unused card with a 15,000 limit is commonly assessed at 3–3.8% of the limit as a monthly commitment — over 500 a month for a card you never touch. Reducing the limit is free, takes a phone call, and is usually the single largest gain available.
- Conservative treatment of variable income, plus any tax you owe but have not yet paid, which a careful assessment counts as the liability it is.
Two further tests sit alongside serviceability rather than inside it, and either can bind first: a debt-to-income ceiling on total borrowing relative to gross income, and the loan-to-value band, which governs both the rate offered and whether mortgage insurance is required. Passing the affordability test does not mean passing those.
Tips to consider
- Get a real stamp duty figure before you commit. Upfront costs here are a flat 5% of price, which is a common rule of thumb and nothing more. Real duty is a bracketed schedule that varies by state, by first-home status and by whether you are an investor, and it changes with budgets.
- Watch the loan-to-value line. Above 80% you are generally into mortgage insurance, which is a real cost and is not included in any figure above.
- Your benchmark is probably not your budget. If your declared living costs sit below the benchmark, the benchmark wins. Entering an optimistic number does not raise your borrowing power, it just makes the output wrong.
- Two years beats one. If you only have one year of self-employed figures, most lenders will be more cautious than this page is. Some will not lend at all under two years.
- Re-run it before you make an offer, not after. Rates, limits and your own trading all move. A number worked out six months ago is a number about a different person.
