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Borrowing Power
Calculator Assumptions
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The
Borrowing Power Calculator calculates the maximum amount of home loan you can
borrow based on the income and expenses entered. Default values are provided
as examples.
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Expense Details and
Default Values
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a) Default annual expense - borrower
assumed to have core level of annual expense, depending on whether single or
joint and the number of dependants, currently as below:
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Number of dependants
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Single
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Joint
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0
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$15,624
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$22,715
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1
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$21,459
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$28,235
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2
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$26,980
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$33,756
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3
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$32,500
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$39,277
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4
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$38,021
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$44,736
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b) Default extra annual expenses for more than 4 dependants - currently set at $5,521 per dependant.
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More than 4
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$5,521
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Each
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c) Maximum percentage of income available - percentage of income available for paying expenses and
servicing proposed borrowing, default currently set at 85%.
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Loan Details
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a) Interest rate buffer - calculator
uses a higher interest rate (the rate entered by user plus the interest rate
buffer) when determining maximum amount that can be borrowed. This allows for
affordability of possible rate increases under the loan. Current version of
the calculator uses an interest rate buffer of 1.5%.
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b) Rounding rules for amount of loan
- the calculator rounds the maximum loan amount down to the lower $1,000. For
example, if the amount is $250,123, it will be shown as $250,000. Note that
the amount of loan is calculated using the interest rate entered, plus any
interest rate buffer, and then the resulting loan amount is rounded as
required.
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c) Interest rate for loan repayment -
monthly repayment is calculated in respect of the rounded loan amount and
using interest rate entered, not including any interest rate buffer.
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Length of Month
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All months
are assumed to be of equal length. In reality, many loans accrue on a daily
basis leading to a varying number of days’ interest dependent on the number
of days in the particular month.
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Number of Weeks &
Fortnights in a Year
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One year is
assumed to contain exactly 52 weeks or 26 fortnights. This implicitly assumes
that a year has 364 days rather than the actual 365 or 366.
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