1. What is Westpac Capacity Calculation?

The Westpac Capacity calculation determines borrowing capacity by dividing annual income by a 3% buffer rate. This approach helps assess loan affordability and financial capacity based on income levels.

2. How Does the Calculator Work?

The calculator uses the Westpac Capacity formula:

Where:

• \( \text{Income} \) — Annual income in Australian Dollars (AUD)
• \( 0.03 \) — The 3% buffer rate used by Westpac

Explanation: This calculation provides an estimate of borrowing capacity based on income while applying Westpac's conservative 3% assessment rate.

3. Importance of Capacity Calculation

Details: Understanding borrowing capacity is essential for financial planning, mortgage applications, and ensuring loan repayments remain sustainable relative to income.

4. Using the Calculator

Tips: Enter your annual income in Australian Dollars (AUD). The calculator will automatically apply the 3% buffer to determine your estimated borrowing capacity.

5. Frequently Asked Questions (FAQ)

Q1: Why does Westpac use a 3% buffer?
A: The 3% buffer is a conservative measure to ensure borrowers can comfortably manage repayments even if interest rates rise or financial circumstances change.

Q2: Is this calculation specific to Westpac?
A: While this formula follows Westpac's general approach, actual lending decisions may consider additional factors beyond this simple calculation.

Q3: What income should I use for this calculation?
A: Use your gross annual income from all sources, including salary, investments, and other regular income streams.

Q4: Are there other factors that affect borrowing capacity?
A: Yes, lenders also consider expenses, existing debts, credit history, loan term, and the type of loan product when assessing capacity.

Q5: How often should I reassess my borrowing capacity?
A: It's recommended to review your borrowing capacity annually or whenever your financial situation changes significantly.