What this estimate assumes
This is a reconstruction of how a lender is expected to assess a loan, not a measurement of what a household can afford. Three inputs are assumptions rather than readings. Tax is modelled, not read: gross income is converted to net using general resident rates and the Medicare levy, which excludes offsets, salary packaging, investment losses and a second income taxed at a different marginal rate. Credit limits stand in for balances, because revolving credit is assessed by reference to the approved limit rather than what is owed, so a large unused limit still consumes capacity. And income is taken at face value, where a lender would discount overtime, bonuses, commissions and rental income by a policy it does not publish.
The largest assumption is the one set by the regulator. The Australian Prudential Regulation Authority expects lenders to “assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate”, raised from 2.5 points on 6 October 2021 and current as at September 2026.
A worked example. On a 600,000 dollar loan at an assumed product rate of 6.00 per cent over 30 years, the repayment actually made is about 3,597 dollars a month. The repayment the lender tests, at 9.00 per cent, is about 4,828 dollars. That is roughly 34 per cent more, and it is the figure that has to fit inside the surplus left after tax, living expenses and existing commitments.
The conclusion to draw is that the binding constraint is the assessed repayment rather than the real one, which is why a household comfortably meeting a repayment can still be told the amount is unavailable. It also means negotiating the rate down moves capacity less than expected, because whatever rate is achieved is buffered upward by the same three points.
Longer read: Why a lender lends less than a calculator says. Two supervisory decisions sit between a borrowing estimate and a lender decision: the loan is tested well above the rate that would be paid, and declared expenses are checked against a benchmark that confirms nothing about anyone.
Why a lender’s answer comes out smaller again, and how expenditure benchmarks work, is covered in why a lender lends less than a calculator says.
Pair this with the mortgage repayment calculator to see what a loan costs per month, and the stamp duty calculator for the upfront duty. If you are weighing up professional help, the guide to finding a mortgage broker explains what to look for - it is educational only and recommends no one.