Two numbers matter and they are rarely the same. What a lender will approve, and what you can live with. Understanding how the first is calculated tells you what to work on.

The buffer nobody explains

Lenders do not assess whether you can afford the repayment at today's rate. Under APRA guidance they assess you at roughly three percentage points above the rate you would actually pay.

So if the rate on offer is 6%, your capacity to repay is tested at around 9%. On a $600,000 loan over 30 years that is the difference between a real repayment near $3,600 a month and an assessed repayment near $4,830.

This single mechanism is why people are approved for far less than they expect, and it is not negotiable at the individual level.

What goes into the calculation

  1. Assessable income. Your base income, plus whatever portion of overtime, bonus, commission or rental income the lender is willing to count. Different lenders count these differently, which is why borrowing capacity varies by tens of thousands between banks.
  2. Declared living expenses, floored by HEM. Lenders use the Household Expenditure Measure, a benchmark based on household size, location and income. If your declared expenses come in below the benchmark, most lenders use the benchmark anyway.
  3. Existing commitments. Loan repayments, and credit card limits assessed at full value regardless of balance.
  4. Buffered repayment on the new loan. As above.
The fastest lever

Reducing or closing a credit card is usually the quickest way to move your borrowing capacity. A $20,000 limit can reduce it by a figure in the tens of thousands, whether or not you have ever used the card. Clearing a car loan often does more than a pay rise.

The other number: what you can live with

The common Australian definition of mortgage stress is housing costs above 30% of gross income for lower-income households. It is a blunt measure and it is the one most widely used.

What that measure leaves out is everything else ownership costs. Council rates, water, building insurance, and for an apartment, strata levies that can run to several thousand dollars a year and are not optional. Budget these as a separate line before you decide what you can afford, not after settlement.

Use the calculator, then pressure test it

MaiKa's Home Readiness Calculator shows both figures side by side: your repayment at the real rate, and the assessed repayment at the buffered rate. Treat the result as a ceiling to test against rather than a target to reach.

Then talk to a broker. Because lenders assess income and expenses so differently, the spread in borrowing capacity across the market for the same borrower is large enough to be worth a conversation.