How Much Can I Borrow on my Mortgage?


Embarking on the journey to homeownership inevitably leads to a pivotal question: “How much can I borrow on my mortgage?” This question is not just a numerical calculation but a complex evaluation involving various factors.  

To make your journey easier, we’ve created a detailed guide to help you navigate the nuances and understand what can shape your mortgage borrowing capacity. 


Understand Your Income and Expenses 

At the heart of determining your borrowing capacity lies your income. Lenders often use a percentage of your gross income to calculate this capacity, typically ranging from 25% to 35%. For example, if your gross annual income is $100,000 and the lender applies a 30% ratio, your borrowing capacity would be $30,000 per year.  

Similarly, your existing financial commitments and daily living expenses are also critical considerations for lenders. They aim to ensure that, after meeting your mortgage repayments, you still have sufficient income to cover other essential costs, from credit card payments to car loans. 


Look at Interest Rates and Loan Terms 

Interest rates wield considerable influence over your borrowing capacity. Lenders assess your ability to repay the loan not just at the current interest rate but also under the stress of potential rate increases. This stress-testing is crucial for ensuring that borrowers can manage their mortgage payments in diverse economic conditions. 

The term of your mortgage, or the duration you plan for repaying the loan, also impacts your borrowing capacity. While shorter loan terms often mean higher monthly repayments, they may result in lower overall interest costs. Longer loan terms, on the other hand, might offer lower monthly payments but increase the total interest paid overall, over the term. 


Understand Loan-to-Value Ratio (LVR) and deposits  

The Loan-to-Value Ratio (LVR) is the proportion of the loan amount to the property’s appraised value. Lenders use LVR to gauge risk, with a lower LVR often leading to better borrowing terms. Calculating LVR involves dividing the loan amount by the property’s value and multiplying by 100.  

An easy way to get an estimate of the loan amount is to take the price of the property and subtract how much you would pay as a deposit. 

Speaking of deposits, the size of your deposit is inversely related to the amount you need to borrow. A larger deposit reduces your borrowing requirement, potentially enhancing your borrowing capacity. Furthermore, a substantial deposit may lead to more favorable loan terms, including lower interest rates. 


Explore Government Incentives 

Government incentives, grants, or schemes can significantly impact your borrowing capacity. Research the options available in your region for first-time homebuyers, such as the First Home Owner Grant or Stamp duty concessions. 


Review Your Credit History 

A good credit history positively influences your borrowing capacity. Lenders assess your creditworthiness, and a good credit score can result in better loan terms. You should regularly review your credit report to address any issues and maintain responsible financial behavior. 


Seek Professional Advice  

Engaging with a mortgage broker can offer valuable insights and allow you to maximize your borrowing power. At Glass Financial, our advisors have access to a wide range of lenders and possess the expertise to guide you through the intricacies of mortgage applications. Their advice ensures that your decisions align with your unique financial goals.  

As you can see, finding out how much you can borrow on your mortgage isn’t quite as simple as it can appear, and there are numerous variables that can positively or negatively affect your borrowing power. 

However, with the help of an experienced Glass Advisor, you can embark on your home-buying journey well-informed and confident, plus we will be working by your side to source the very best deal to suit your specific needs. 


If you want the best experience in your home-buying journey, all you need to do is speak with the Glass team today on 1300 245 277 or send us an email to [email protected]  


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