May 17, 2019 11:24:53 AM

Understanding Borrowing Capacity

Topics: Lenders, nz mortgage, NZ Mortgage Adviser, Home Loan Advice, Mortgage Advice, Borrowing Advice, Borrowing Capacity 0

Before going house hunting, it makes good sense to know how much you can actually borrow from your lender. Your borrowing capacity is the amount that a lender will lend you to buy a property. Sounds simple but it’s not: there are all kinds of factors involved that determine the amount a lender comes up with, and your loan amount can vary from lender to lender. Read on to find out more about borrowing capacity.


How much could you borrow?
There are two parts to the overall calculation that lenders work through in determining your borrowing capacity – the amount they will lend you for a mortgage.

Lenders will look at both your income and your expenses to calculate how much you have left over to make loan repayments. Even with a large deposit and several assets under your belt, it doesn’t mean you have the cash flow required to repay a mortgage.

The types of things that lenders will take into consideration include:

• Salaries and wages.
• Rental income from investment properties.
• Investment income.
• Number of applicants and dependants to determine estimated living expenses.
• Credit card limits.
• Personal or car loan repayments and payments on other mortgages.
• Other commitments like maintenance, student loan repayments, etc.

How to improve borrowing capacity?
If you find you’re not able to borrow as much as you would like, there are ways you can improve your borrowing capacity. By focusing on either increasing your income or decreasing your expenses, you may be able to borrow more. Here are some ways to do this:

• Save more – not only does a bigger deposit mean less to borrow, it also improves your negotiation position and shows the lender that you are able to save.
• Reduce your debt – credit card debt has a significant impact on borrowing capacity so it’s always best to pay these off. Any unused credit card limits will still be counted in lender’s calculations so it’s worthwhile checking with your mortgage broker whether or not to cancel these before applying for a mortgage.
• Improve your credit report – defaults and missed payments show up as a negative on your credit report so it’s important you manage any debt repayments really carefully and avoid missing payments or making late payments.

While online mortgage calculators are useful in calculating a rough estimate of the amount you could potentially borrow, if you are shopping around for a home loan it’s worthwhile getting in touch with your Mortgage Express adviser to discuss your borrowing capacity and lending options.

For more tips and advice around managing your money, consolidating your debts, or applying for finance, follow Mortgage Express on Facebook and Twitter, or contact one of our mortgage advisers.


While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

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