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Serviceability · Updated October 2026 · Phil SkeneHow borrowing power is calculated in Australia
Every lender has its own serviceability calculator, but they all follow the same shape. Here is that shape, step by step, as the Borrowing Profile Engine applies it.
The test rate and the APRA buffer
Lenders don't test whether you can afford the loan at today's rate. APRA, the Australian Prudential Regulation Authority, requires them to check you could still afford it if rates were at least 3 percentage points higher. APRA reaffirmed that buffer on 28 May 2026.
The engine starts from the RBA's published average variable rate, 5.90%, adds the 3.00 point buffer, and tests borrowing power at 8.90% over a 30-year principal and interest loan. Repayments shown to the client use their actual rate, not the test rate.
Income, shaded by employment type
Lenders count some income more cautiously than others. The engine weights gross income like this:
| Employment | Income counted |
|---|---|
| PAYG full time | 100% |
| PAYG part time | 90% |
| Casual or contract | 80% |
| Self-employed | 75% (two-year average net profit) |
| Bonus or overtime | 60% |
| Rental income | 80% |
Tax
Tax is worked out on the current 2026-27 resident brackets, plus the 2% Medicare levy:
| Taxable income | Rate |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 15% |
| $45,001 to $135,000 | 30% |
| $135,001 to $190,000 | 37% |
| $190,001 and over | 45% |
Living costs and HEM
Lenders deduct living costs using the higher of what you declare and a benchmark. The best-known benchmark is the Household Expenditure Measure (HEM) from the Melbourne Institute. Its tables are licensed commercially and not published, so no public tool can quote the exact figure, only the same kind of adjustment.
The engine uses a household-scaled allowance: $2,300 a month for a single person, $3,600 for a couple, plus $700 per dependant, or the person's own monthly spending if that's higher.
Existing debts
Debts reduce the monthly surplus. Credit cards count on their limit, not the balance, at about 3.8% of the limit a month, which is why closing unused cards can lift borrowing power. Personal and car loan repayments, HECS and existing mortgages come off too.
A worked example
A single person, PAYG full time, earning $120,000 a year, with no debts and a $100,000 deposit:
| Tax and Medicare | $28,920 a year |
| Net income | $7,590 a month |
| Living costs | $2,300 a month |
| Surplus | $5,290 a month |
| Borrowing power at the 8.90% test rate | about $663,000 |
| Buying power with the deposit | about $763,000 |
| Repayments at 5.90% | about $3,935 a month |
These are indicative estimates, not an offer of finance or pre-approval. A real assessment depends on the lender, the credit file, a valuation and full verification. That's exactly what the broker is for.
Common questions
What is the APRA serviceability buffer?
APRA requires lenders to assess whether a borrower could still afford their loan if interest rates were at least 3 percentage points higher than the loan's actual rate. It is a safety margin, not the rate the borrower pays.
Why do online borrowing calculators give different answers?
Each lender and tool uses its own living cost benchmarks, income shading, debt treatment and assessment rate. The real HEM tables are licensed and not published, so public tools can only approximate them.
Do credit card limits reduce borrowing power?
Yes. Lenders usually count a percentage of the full card limit as a monthly commitment, even if the balance is zero, so closing unused cards can increase borrowing power.
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