Borrowing Power
Maximum loan you can afford.
What does Borrowing Power mean?
Borrowing power is the maximum loan amount a lender may offer you based on your income, living expenses, existing debts, and the loan terms. It represents the upper limit of what you could borrow while still being able to afford the repayments. Understanding your borrowing power helps you set a realistic budget before house-hunting or applying for a major loan.
How to calculate Borrowing Power
The calculator first determines the amount available for repayments: (Annual Income / 12) − Monthly Expenses − Existing Debt Payments. It then works backward from this maximum monthly repayment using the standard annuity formula to find the largest loan that repayment can service over the chosen term. Max Loan = Payment × ((1 + r)^n − 1) / (r × (1 + r)^n), where r is the monthly interest rate and n is the total number of months.
FAQ
No. Borrowing power is the maximum a lender might approve. Most financial advisors recommend borrowing less than the maximum to maintain a comfortable buffer for unexpected expenses, rate rises, or lifestyle changes.
Key factors include gross income, living expenses, existing debts, interest rate, loan term, number of dependents, and credit history. Reducing expenses or paying off existing debts can significantly increase your borrowing power.
This calculator uses gross income as an input. For a more accurate result, you may want to enter your net (after-tax) income instead, since that reflects the money actually available for expenses and repayments.
Higher interest rates reduce borrowing power because more of each repayment goes toward interest rather than principal. Even a 0.5% rate increase can reduce your maximum loan by tens of thousands of dollars over a 30-year term.
If applying jointly, combine both incomes and both sets of expenses and debts. Joint applications typically result in higher borrowing power, but both applicants share responsibility for the loan.
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