So, you may have heard of the phrase 'borrowing power' or 'borrowing capacity' in the past, or even know your amount, but aren't really sure of the process or how the banks got to that number.
Don't worry. This article will break down and outline how banks calculate borrowing power to put the lending confidence and power back into your hands.
In this guide, we will cover:
- How banks calculate borrowing power for customers across the industry
- What this means for you
- How BFG can ensure the best value for you
With that, let’s begin.
Any further questions? Contact us via email or call today!
How do the banks calculate your borrowing capacity?
Overall, all calculations are the same, regardless of if you are self-employed worker or not. This means that your interest rates and features will remain identical to any other bank customer. But on top of this, each bank will have their own online borrowing capacity calculator for you to use.
Accordingly, every calculator is slightly different and may have additional functions. However, their general features are consistent across the industry, including fields for:
- If the loan is for yourself or includes other participants
- If you have any dependents
- If the property is residential or an investment
- Pre-tax income and other sources of income (or your partner’s, if applicable)
- Expenses, including living, existing home loan repayments, additional loan repayments, other commitments and credit card limits.
Once completed, the calculators will provide you with your final amount depending on the information provided.
However, it is critical to acknowledge that this figure is a guiding estimate as it assumes interest rates are stagnant over the loan’s lifetime. So do take your final borrowing capacity with a grain of salt.
So you have your borrowing power, where to go from here?
After calculating your amount, most banks will direct users to other calculators below or encourage them to talk to a lending specialist. These calculators include stamp duty and repayments- which are also available on our website, amongst others.
However, if you wish to meet a specialist for further discussions and questions, you will need to make an appointment with your current bank.
For self-employed workers, once booked we highly recommend that you bring the following to the appointment especially for home loan applications:
- Your most recent personal and business tax returns and notice of tax assessment
- Proof of your ABN (Australian Business Number) being registered for at least two years
- Your most recent business financial statements, depicting the last two consecutive years’ profit and loss, as implemented from the economic impact of the COVID-19 pandemic
And that’s where we come in.
How you can get the best value with BFG
At BFG, we compare and negotiate loans from over 30 lenders to find the best deal for you. Additionally, by working with a mortgage broker like us, you’ll receive information uniquely tailored to your situation and business and accompanying advice to ensure you don’t miss out on any benefits.
And with us, you also give back. Whenever we make a home loan, we invest up to half of all the profits into our partner charities addressing housing and social issues within Australia and internationally. Each investment is made in the name of our customers and in turn, they can make a tax-deductible and tangible difference.
If you have any further questions or concerns regarding your borrowing power, please don’t hesitate to contact one of our brokers for a chat. We’re always ready and happy to help.
Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstances and requirements.