Your debt position directly determines how much you can borrow for a home, investment property, or business loan in Australia. In 2026, APRA's serviceability buffer of 3% above the offered rate means lenders test your ability to repay at approximately 9-10% — even if your actual interest rate is lower. Understanding which debts impact your borrowing power, and by how much, helps you optimise your financial position before applying for a loan.

How Lenders Calculate Borrowing Power in 2026

Lenders assess whether your income is sufficient to service all your existing and proposed debt obligations at the stressed rate (offered rate + 3%). They calculate your Net Surplus Ratio (NSR) or similar metric: total income after tax versus total committed expenses. If you cannot demonstrate sufficient surplus after all debts are serviced at the stressed rate, your application is declined or the loan amount is reduced.

How Each Debt Type Affects Borrowing Power

Credit Cards

Lenders assess your credit card limit — not your current balance — at a monthly minimum repayment of typically 3% of the limit. A $10,000 credit card limit reduces your assessed monthly income surplus by $300/month ($3,600/year), even if you pay the balance in full each month. Cancelling unused credit cards or reducing limits before applying for a mortgage significantly improves your borrowing power.

HECS-HELP Debt

Compulsory HECS-HELP repayments are treated as a committed expense in serviceability calculations. At $80,000 income, the compulsory repayment is approximately 4% ($3,200/year or $267/month). This reduces borrowing capacity — some lenders treat HECS more harshly than others. Paying off HECS voluntarily before a major loan application can improve your borrowing power, though the decision should be weighed against the low interest rate on HECS.

Car Loans and Personal Loans

The actual monthly repayment on existing car and personal loans is included in your expense assessment. A $600/month car loan reduces your assessed surplus dollar-for-dollar. Paying off a car loan or personal loan before applying for a home loan can meaningfully increase the amount you can borrow.

Existing Home Loan or Investment Loans

For refinancing or purchasing a second property, your existing loan is assessed at the stressed rate (not the actual rate). If your investment property generates rental income, lenders count approximately 70-80% of rental income (shaded income) to offset the loan expense. A second investment loan is assessed harder than a primary residence loan, as there is no rental income offset for the first property (your home).

Frequently Asked Questions

How much does a credit card reduce my home loan borrowing power?

As a rule of thumb, every $10,000 of credit card limit reduces your home loan borrowing power by approximately $40,000-$50,000 (the limit divided by 3% x 12 divided by the servicing factor). Reducing your credit card limits or cancelling unused cards before applying for a mortgage is one of the fastest and easiest ways to increase your borrowing capacity.

Should I pay off debt or save a deposit before buying?

This depends on your debt's interest rate versus your borrowing need. High-interest debt (credit cards, personal loans at 15-20%) should generally be paid down first — both for borrowing capacity reasons and to reduce interest costs. Low-interest HECS debt is less urgent to pay off. The optimal strategy depends on your specific income, existing debt, target property price, and lender's assessment of your position — a mortgage broker can model this for you.

Want to understand how your current debt position affects your borrowing capacity? Contact AWTS — we help clients optimise their financial position before major loan applications.