1. What is the Borrowing Capacity Calculator With Equity?

The Borrowing Capacity Calculator With Equity estimates the maximum loan amount a borrower can obtain by considering both the equity in their property and their income assessment. It provides a comprehensive view of borrowing potential by combining property value and income factors.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( \text{Property Value} \) — Current market value of the property
• \( \text{LVR} \) — Loan-to-Value Ratio (decimal between 0 and 1)
• \( \text{Income Assessment} \) — Borrower's assessed income capacity
• \( \text{Existing Loan} \) — Current outstanding loan amount

Explanation: The equation calculates the maximum borrowing capacity by combining the available equity in the property (Property Value × LVR) with the borrower's income capacity after accounting for existing loan obligations.

3. Importance of Calculating Borrowing Capacity

Details: Understanding your borrowing capacity is crucial for financial planning, property investment decisions, and ensuring you don't overextend yourself financially. It helps determine how much you can afford to borrow while maintaining financial stability.

4. Using the Calculator

Tips: Enter accurate property valuation, appropriate LVR (typically 0.8 for most lenders), realistic income assessment, and current outstanding loan amount. All values must be non-negative, with LVR between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical LVR for mortgage lending?
A: Most lenders typically offer LVRs up to 0.8 (80%), though some may go higher with additional requirements like lender's mortgage insurance.

Q2: How is income assessment calculated?
A: Income assessment typically considers your gross income, minus certain expenses and liabilities, and applies a serviceability buffer to ensure you can afford repayments.

Q3: Why subtract existing loan from income assessment?
A: Existing loan repayments reduce your available income for servicing a new loan, so they're deducted from your income assessment capacity.

Q4: Does this calculator consider other debts?
A: This simplified model focuses on property equity and major loan obligations. Comprehensive assessments should include all debts and living expenses.

Q5: How often should I reassess my borrowing capacity?
A: It's recommended to reassess whenever your financial situation changes significantly, such as after a pay raise, property value change, or before considering new borrowing.