You ask a lender how much you can borrow and get back a number that feels oddly specific, and often lower than you expected. That figure comes from a fairly mechanical sum: your income, minus what you already owe, minus what you spend to live, all run through a scenario that assumes things get a little harder than they are today. Understanding that sum is the fastest way to stop being surprised by it.
What a lender counts as income
Income is treated differently depending on its type, and this is where people often overestimate their own number. A stable base salary is counted close to its full value. Other income is discounted or scrutinised, because a lender is trying to work out what you can reliably count on for the life of the loan, rather than what you earned in a single good year.
APRA's practice guide for residential mortgage lending sets out how this plays out. A prudent lender discounts or disregards income that is temporarily high or uncertain, and bonuses, overtime and variable commissions generally take significant discounts. For wage income, lenders confirm whether you are permanent, casual, part-time or on contract, and check your payslips and bank statements. Self-employed income draws the closest scrutiny of all, because APRA notes it tends to be less certain, so lenders verify it with tax returns, an accountant's letter and other documents.
The theme running through all of this is simple: the more predictable and provable the income, the more of it counts.
What counts against you
Every dollar you already owe, or could plausibly owe, reduces the amount you can be lent. The part that catches people out is the word "could". APRA's guide expects lenders to assess credit cards and other revolving debt on the total committed limit, which is the most the facility lets you draw.
The clearest example is a credit card. Under this approach, the limit on your card counts as a commitment, whatever balance you actually carry. A card with a large limit that you pay off in full every month still counts against you at its limit, because the whole amount could be drawn down tomorrow. Reducing a credit limit you don't need, or closing a card you don't use, takes that commitment out of the assessment.
The same logic extends further. APRA expects lenders to count HELP debt alongside your other commitments, because HELP repayments come out of your gross income and are not available to service a mortgage. Personal loans, car finance and any existing home loan all sit in the same column. The sum is straightforward: more standing commitments, less borrowing power.
Living expenses and the benchmark
After income and commitments, a lender needs to know what it actually costs you to live: groceries, utilities, insurance, transport, childcare, the ordinary running costs of a household. You report this yourself, based on your real spending.
That declared figure is then checked against an independent yardstick. APRA's prudential guidance on serviceability expects lenders to test declared expenses against a benchmark, so that an unrealistically thrifty budget can't be used to inflate a loan. In practice, a lender uses whichever number is higher: what you say you spend, or the benchmark figure for a household like yours. Where the declared figure is too low, the benchmark quietly does the work instead.
Why two lenders give two answers
This is the frustrating part: you can apply to two lenders with the same payslips and the same debts and be offered two different amounts. That gap reflects genuine differences in how each lender applies the rules, all within the same set of prudential expectations APRA sets for the industry.
Within that shared framework, each lender applies APRA's expectations through its own lending policies and risk appetite. ASIC Moneysmart suggests contacting at least two different lenders to get loan options personalised for your situation. Treat a borrowing-power figure as one lender's assessment under its own policy, rather than the final word on your capacity.
How to lift your borrowing power
Before you apply, look at the levers you actually control. Reduce or cancel credit limits you aren't using, since it is the limit that counts toward the assessment, regardless of the balance sitting against it. Pay down or close small personal loans rather than leaving them open. If your income includes overtime, bonuses or casual hours, keep a clean paper trail that shows consistency over time, since that is what turns a discounted figure into something closer to full value. Declare your living expenses honestly and in full, since an unrealistic budget will be overridden by the benchmark anyway.
The useful work is changing how a lender reads your application: lower unused credit limits, fewer standing commitments, cleaner income records and honest living expenses.