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Mortgage calculator – how much can I borrow?

Get an estimate of how much you can borrow before you start your property search.

Using a mortgage deposit calculator can help you plan your property purchase. One of the biggest questions people have is, “How much deposit do I need to buy a house?” Calculator estimates can give you a good idea of the amount and help you plan your next steps.

Enter your income, expenses, other financial commitments and mortgage details to use the calculator. If you’re not sure about the mortgage details, you can look at the table on Finder’s mortgage page and enter estimates.

This calculator doesn’t give a result based on your deposit size because lenders decide how much to lend you based on various factors.

Income details

One of the first factors a potential lender looks at when evaluating how much you can borrow, in addition to your deposit, is your income. Your income dictates how much you can repay from your loan each month, so lenders want to know if your income can meet the repayments for the size of the loan you want.

Your potential lender will ask you the following questions about your income:

  • How much of your income have you been able to save?
  • Has your income increased or decreased?
  • What are your ongoing financial commitments?

If you’re married or buying a home with your partner, your household income rises, and so does the probable amount you can borrow. While this may seem fantastic, remember there are still situations you must plan for, such as if one of you loses your job or if you decide to have children.

Proof of your ability to save is vital if you’re buying your first home. If you’re a first home buyer, you may be entitled to the First Home Grant.

A good savings history also tells a potential lender that you’re likely to keep up with regular repayments. In contrast, suppose you already have a mortgage and want to refinance. In that case, a savings pattern may not be so essential because your potential lender has your loan repayment history to assist their decision.

Debts and expenses

Your debts and what you spend each month are as crucial as your deposit, income and savings. Therefore, you need to consider any financial commitments and obligations you regularly pay to determine if your income is sufficient to make your repayments.

Before meeting with your lender to discuss how much you can borrow, make a determined attempt to pay off your outstanding debts, and if possible, completely repay and discard any credit cards you don’t need. Then, you can enter discussions with your potential lender with as little financial baggage as you can, and the lender may reward you with increased borrowing capacity.

Some debts or expenses may decrease the amount you can borrow or even cause a lender to reject your loan application. In addition to those above, they may include the following:

  • Payment history: Do you pay any money owed on time? This element is a determining factor in any loan approval. Payment history that a lender considers includes credit cards, bills, car loans, mortgages and loans of all types as well as bankruptcy.
  • Outstanding debt: Most people have debt, but the lender wants to know how much you have. Outstanding balances for credit cards, personal loans, car loans and mortgages determine how much a lender thinks you can borrow. It’s important to note that mortgage lenders use your overall credit card limit to assess your current level of outstanding debt – this is your entire credit limit, not just what you have used.
  • Debt to income: The classic ratio of what you owe to what you earn. Lenders use this ratio to determine your ability to pay your current debt and possible future debt if you receive approval for loans or mortgages. Also, child care costs and children can sometimes reduce your borrowing power.
  • Credit history: How long have you had credit? Mortgage providers take the length and usage of your finances into account. Not only does this show items like foreclosures and bankruptcies, but it also shows attempts at repaying debt. In addition, loan processors use this to try and determine how reliable you may be at paying back a loan.
  • Applications for new credit: Each time you apply for credit, a note is made in your credit report, and lenders will look at this.

Loan type and term

The type of mortgage you choose and the loan’s term (the length you borrow the money for) also has a bearing on your borrowing power.

A loan with minimal features, low fees and a low-interest rate might mean your repayments are lower and, therefore, could mean you can borrow more. In addition, if you plan to pay off your loan in 30 years instead of 25 years, this also lowers your repayments.

On the other hand, a shorter loan term could save you thousands of dollars in interest but increase your repayments. So when you meet with your potential lender or mortgage broker, make sure you discuss the different options available.

Before applying for a mortgage, make sure you look around to get the best rate and get your finances in order. Being prepared increases your chances of receiving approval and borrowing the amount you want. Regardless of how much your loan provider decides to lend you, work out if the loan suits you and your situation. You also need to look at what features it offers you and if you could still comfortably afford the repayments if interest rates increased.

Deposit size – what is a loan-to-value ratio (LVR)?

While it’s not in the calculator, your deposit also constitutes a big part of how much you can borrow.

One way a potential borrower demonstrates their ability to make repayments is through their deposit size. A substantial deposit shows you’ve been able to save regardless of your expenses. Also, the amount a lender lets you borrow depends on how large your deposit is in relation to the value of the property, otherwise known as the LVR.

The LVR is shown as a percentage and is worked out by dividing the loan size you require by the property’s value. Below is an example of how to work out what your LVR would be:

Example: Loan-to-value ratio

Chad is looking at purchasing a $400,000 home. He has a deposit of $40,000 saved up and is ready to go. However, to work out his LVR, he first needs to determine how much he needs to borrow. To do this, Chad needs to subtract the deposit from the property’s value he wishes to buy.

how to calculate how much you need to borrow

Next, Chad needs to divide this amount by the property’s value and multiply it by 100.

how to calculate your LVR

Chad’s LVR would likely be 90%.

* This is a fictional, but realistic, example.

Remember that you also need to account for other costs when purchasing a home, which can include the following:

  • Repair fees
  • Maintenance fees
  • Loan feature fees for facilities such as redraw

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