Understanding Your Borrowing Power on a $90,000 Salary in Australia

What is Borrowing Power?

Borrowing power, also known as borrowing capacity, is the amount a lender is willing to lend you based on your financial situation. It is influenced by factors such as your income, expenses, credit score, and the current interest rates. For someone earning $90,000 per year, understanding these factors can help you gauge how much you might be able to borrow.

Factors Affecting Borrowing Power

Income and Expenses

Lenders primarily assess your income to determine your ability to repay a loan. On a $90,000 salary, your monthly income is about $7,500 before tax. Lenders will deduct your monthly expenses, such as living costs, existing debts, and other financial commitments, to calculate your net income available for loan repayments.

Interest Rates

Interest rates play a significant role in determining borrowing power. Lower interest rates mean lower monthly repayments, enhancing your borrowing capacity. Currently, Australian interest rates are relatively low, but it's essential to keep an eye on market trends as rates can fluctuate.

Loan Term

The length of the loan term can also affect your borrowing power. A longer loan term reduces monthly repayments, potentially increasing your borrowing capacity. However, it also means you'll pay more interest over the life of the loan.

Deposit Size

The size of your deposit directly impacts your borrowing power. A larger deposit reduces the loan amount needed, thereby increasing your borrowing capacity. Additionally, it can potentially help you avoid paying Lenders Mortgage Insurance (LMI).

Practical Tips to Maximise Borrowing Power

Reduce Existing Debts

Reducing or eliminating existing debts can significantly enhance your borrowing power. Consider paying off credit card balances, car loans, or personal loans to improve your financial standing.

Improve Your Credit Score

A good credit score can positively influence your borrowing power. Ensure timely payments of bills and debts, and check your credit report for any inaccuracies that could be affecting your score.

Consider a Joint Application

Applying for a loan with a partner can increase borrowing power, as the combined income and financial commitments are assessed. However, ensure both parties are comfortable with the financial responsibility involved.

Minimise Living Expenses

Lenders scrutinise your living expenses when assessing your borrowing power. Reducing discretionary spending can improve your net income, thereby increasing your borrowing capacity.

Common Mistakes to Avoid

Overestimating Income

It's crucial to be realistic about your income and avoid overestimating it. Lenders will verify your income through payslips and tax returns, so any discrepancies could harm your application.

Ignoring Additional Costs

Don't forget to account for additional costs such as stamp duty, legal fees, and moving expenses. These can significantly impact your overall budget and borrowing power.

Not Shopping Around

Different lenders have different criteria for assessing borrowing power. It's beneficial to shop around or consult a mortgage broker to find the best deal and maximise your borrowing capacity.

How Esteb and Co Can Help

At Esteb and Co, we specialise in helping Australians navigate the complexities of the home loan process. Our experienced mortgage brokers can provide personalised advice tailored to your financial situation, ensuring you maximise your borrowing power. We work with a wide range of lenders to find the most suitable loan options, guiding you every step of the way to secure your dream home.