How to Calculate Your Borrowing Capacity

Your borrowing capacity is the maximum loan amount a lender will approve based on your income, expenses, debts and the property type you're purchasing.

Serviceability Buffer and Interest Rate Assessment

Lenders assess your ability to repay at a rate roughly 3 percentage points above the actual loan product rate. If you're looking at a variable rate investment loan, the assessment rate might be around 9% even though you'd pay closer to 6%. This buffer exists to ensure you can still afford repayments if rates rise. Consider a Sydney-based renter earning $95,000 annually who wants to purchase an investment property while continuing to rent in Newtown. Their lender calculates serviceability using the higher assessment rate, not the rate advertised. At an assessment rate of 9% on a 30-year loan term, monthly principal and interest repayments on a $600,000 loan would be assessed at approximately $4,830. The lender then compares that figure against net income after tax, existing debts, declared living expenses, and rental payments to determine whether the application is serviceable. That assessment rate directly limits how much this buyer can borrow, regardless of how comfortably they could manage repayments at the actual product rate.

Income Treatment for Investment Loans

Salary and wage income is assessed at close to 100% of gross for serviceability purposes. Rental income from the investment property you're purchasing is typically shaded to 80%, meaning only 80% of the expected rent is counted toward your serviceability. Lenders assess rental income at a discounted rate to account for vacancies, maintenance costs, and periods between tenants. If the property you're buying is expected to generate $550 per week in rent, the lender includes $440 per week in your income assessment. This shading reduces your borrowing capacity compared to someone purchasing with the same salary as an owner-occupier. For rentvesting scenarios, this matters because you're carrying both your own rental payment as an expense and receiving discounted credit for the income your investment property will generate.

Debt-to-Income Lending Limits

From 1 February 2026, lenders can approve no more than 20% of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings across all loans equal or exceed six times your gross annual income, your application falls into a restricted portion of the lender's lending book. This doesn't mean automatic decline, but it does mean fewer spots available and tighter scrutiny on the rest of your application. A single income borrower earning $110,000 who wants to borrow $680,000 sits just over the six-times threshold. Some lenders may still approve that loan, but they're working within a quota. If you're applying later in a calendar quarter and that lender has already allocated most of its higher-DTI capacity, you may need to reduce the loan amount, increase your deposit, or move to a different lender with quota remaining. Debt-to-income limits apply to loans settled from February 2026 onward and affect investment lending more than owner-occupied lending due to the lower rental income shading and higher scrutiny on serviceability.

Living Expenses and the Household Expenditure Measure

Lenders use either your declared living expenses or a benchmark figure called the Household Expenditure Measure (HEM), whichever is higher. The HEM is a standardised spending estimate based on household size and income. If you declare $2,200 per month in living costs but HEM suggests $2,800 for someone in your income bracket, the lender uses $2,800. Your rent is added on top of this figure as a separate committed expense. For a Sydney renter paying $650 per week to live in Surry Hills, that's $2,817 per month in rental expense alone, before groceries, transport, utilities or discretionary spending. The combination of HEM and actual rent often creates a higher total expense figure than owner-occupiers face, because owner-occupiers don't carry separate rental costs in the serviceability calculation. This is one of the structural reasons rentvesting can reduce borrowing capacity compared to buying a home to live in, even when both applicants have identical income.

HECS Debt and Other Monthly Commitments

HECS debt is treated as a monthly liability based on the compulsory repayment threshold tied to your income. A borrower earning $100,000 with a $45,000 HECS balance will have a monthly repayment obligation factored into serviceability, reducing the amount they can borrow. Car loans, personal loans, credit card limits and buy-now-pay-later accounts are all assessed as monthly commitments. Even if you pay your credit card in full each month, lenders assess the liability based on the card limit, typically at 3% to 4% of the total limit per month. A $15,000 credit card limit might reduce your borrowing capacity by $30,000 to $50,000 depending on the lender's credit policy. Closing unused accounts or reducing limits before applying can materially increase the loan amount you're assessed for. This applies whether you're applying for a rentvesting loan or any other investment structure.

Loan Structure and Its Effect on Serviceability

Interest-only loans are assessed on a principal and interest repayment basis for serviceability, even though your actual repayments during the interest-only period will be lower. If you apply for a five-year interest-only period on a $650,000 loan, the lender calculates serviceability as though you're paying principal and interest from day one over the remaining loan term. This increases the assessed repayment and reduces how much you can borrow compared to selecting principal and interest from the outset. The benefit of interest-only investment loans is improved cash flow during the interest-only period, but that benefit doesn't translate to higher borrowing capacity at assessment. Similarly, if you're looking at a split loan structure with part fixed and part variable, the lender assesses each portion separately and applies the serviceability buffer to both.

Lenders Mortgage Insurance and Borrowing Capacity

LMI applies to residential loans where the loan-to-value ratio exceeds 80%. The premium is calculated on a sliding scale based on loan amount and LVR, and in most cases can be capitalised into the loan rather than paid upfront. Capitalising LMI increases the total loan amount, which in turn increases the monthly repayment used in the serviceability assessment. If your maximum borrowing capacity sits at $680,000 and the LMI premium adds $22,000 to the loan, your total borrowing requirement becomes $702,000. That higher figure may push you outside serviceability limits, forcing you to either increase your deposit, reduce the purchase price, or pay the LMI premium in cash. For rentvesting scenarios where you're trying to enter the market with a smaller deposit, understanding how LMI affects not just upfront cost but also borrowing capacity is part of structuring the loan correctly. More detail on this is covered in our guide to lenders mortgage insurance for investors.

Property Type and Location

Some lenders apply stricter serviceability or lower maximum LVRs to apartments, particularly in buildings over a certain number of storeys or with a high proportion of investor ownership. A two-bedroom unit in a 15-storey building in Parramatta may be subject to a maximum 80% LVR at one lender and 90% at another, purely based on internal property risk policy. That LVR restriction directly affects how much deposit you need and, if you're at your serviceability limit, may determine whether the purchase is possible. Regional properties can face similar restrictions. A house in a regional town with a population under 10,000 might be capped at 80% LVR regardless of your financial position, or assessed with a higher rental income shading of 70% instead of 80%. These policy overlays vary by lender and aren't always disclosed in public rate sheets. If you're considering regional property investment loans, speak to someone who knows which lenders will assess the location without additional constraints.

How Much Can You Actually Borrow

Run your own numbers before you start looking at properties. Take your gross annual income, subtract tax, subtract your rent, subtract HEM or your actual living expenses if higher, subtract all monthly debt commitments including HECS, and see what's left for a loan repayment assessed at roughly 9%. Most borrowers in Sydney earning a single income between $90,000 and $120,000 and paying inner-city rent will find their borrowing capacity for an investment property sits between $500,000 and $700,000 depending on debts and expenses. That's before considering deposit size, LMI, and lender-specific policy. If you're applying as a couple or have additional income sources, your capacity increases, but the same formula applies. You can explore scenarios in more detail through our borrowing capacity resource, or book a call to work through your specific position and which lenders will give you the most room to move.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions