Borrowing Capacity Calculator (Genworth Serviceability Method)
Estimate your home loan borrowing power based on a detailed serviceability assessment similar to the methods used by lenders and LMI providers like Genworth. This calculation is an estimate and not an offer of credit.
Your total income before tax. Do not include superannuation.
e.g., net rental income or consistent bonuses, entered as a monthly amount.
Number of children or other individuals financially dependent on you.
The combined limit of all your credit and store cards, even if the balance is zero.
e.g., car loans, personal loans, student loans (HECS/HELP repayments are calculated separately).
The period over which you intend to repay the loan.
This is a ‘stress test’ rate, typically the product rate + a 3% buffer, not the actual loan rate.
Estimated Maximum Borrowing Capacity
Net Monthly Income
$0
Total Monthly Expenses
$0
Net Serviceable Income
$0
Your borrowing capacity is estimated based on your net serviceable income (income after tax and expenses), assessed at a buffered interest rate over your chosen loan term. This is not a guarantee of finance.
What is a Borrowing Capacity using Genworth Serviceability Calculation?
A borrowing capacity calculation determines the maximum loan amount a lender is likely to offer you based on your financial situation. The “Genworth serviceability calculation” refers to the specific methodology used by Lenders Mortgage Insurance (LMI) providers like Genworth (now known as Helia) to assess whether a borrower can afford to meet their mortgage repayments. Since LMI protects the lender, the insurer must be confident in your ability to repay the loan. This calculation is therefore a critical part of the approval process for loans with a deposit of less than 20%.
It’s not just a simple income-minus-expenses check. It involves applying ‘buffers’ to interest rates, using standardized living expense benchmarks, and taking a conservative view of your income and commitments to ensure you can handle the loan even if circumstances change. Understanding your borrowing capacity using Genworth serviceability calculation is crucial before you start your property search. Our serviceability calculation tool helps you get a clear estimate.
Borrowing Capacity Formula and Explanation
While the exact formula is proprietary, it’s based on the principle of determining your ‘Net Serviceable Income’ (NSI) or ‘Monthly Surplus’. This is the money left over each month after all taxes, expenses, and existing debt commitments are paid. This surplus is what you can use to repay the new home loan.
The core formula is:
Net Serviceable Income = Gross Income - Taxes - Living Expenses (HEM) - Existing Debt Repayments
Once the Net Serviceable Income is found, the maximum loan amount is calculated using a standard loan amortisation formula, solved for the principal amount, using a higher “assessment” interest rate.
| Variable | Meaning | Unit / Type | Typical Range |
|---|---|---|---|
| Gross Annual Income | Your total pre-tax salary and other consistent income sources. | Currency ($) | $50,000 – $250,000+ |
| Living Expenses (HEM) | Household Expenditure Measure; a benchmark for non-discretionary living costs based on income and family size. | Currency ($) | Varies widely |
| Existing Debt | Monthly repayments for car loans, personal loans, and a percentage of credit card limits (e.g., 3-5%). | Currency ($) | $0 – $5,000+ |
| Assessment Rate | The interest rate used for the calculation, typically the actual rate plus a 3% buffer. | Percentage (%) | 7.0% – 9.5% |
| Net Serviceable Income | The final monthly surplus available to cover the proposed new home loan repayment. | Currency ($) | Varies |
Practical Examples
Example 1: Single Applicant
Let’s consider a single applicant with a stable job.
- Inputs: Gross Income: $90,000/year, Dependents: 0, Credit Card Limit: $5,000, No other loans.
- Calculation: The calculator would first deduct estimated tax and a benchmark for living expenses (HEM). It then factors in a monthly commitment for the credit card (e.g., 3% of the limit = $150/month).
- Results: The remaining surplus income is then used to calculate the maximum loan amount at the high assessment rate (e.g., 8.5%) over 30 years. This provides a realistic borrowing power estimate.
Example 2: Couple with a Child
Here, we see how joint income and dependents affect the outcome.
- Inputs: Gross Income 1: $110,000/year, Gross Income 2: $60,000/year, Dependents: 1, Credit Card Limit: $15,000, Car Loan: $500/month.
- Calculation: The combined income increases borrowing potential, but this is offset by significantly higher living expense benchmarks for a couple with a child, and the car loan repayment.
- Results: Despite a higher household income, the increased commitments and living costs will result in a different borrowing capacity compared to simply adding two single applicants together. A home loan repayment calculator can help break down the final repayment figures.
How to Use This Borrowing Capacity Calculator
- Enter Your Income: Input your gross (pre-tax) annual salary. Add any other regular, reliable monthly income in the ‘Other Income’ field.
- Declare Dependents: Enter the number of financial dependents you have. This significantly impacts the living expense calculation.
- List Your Commitments: Be honest about your total credit card limits and monthly repayments for any other loans (car, personal, etc.).
- Select Loan Term: Choose your desired loan term, typically 30 years for new home loans.
- Review the Assessment Rate: The default rate includes a standard buffer. It’s high for a reason—to ensure you can afford repayments if rates rise.
- Interpret the Results: The ‘Estimated Maximum Borrowing Capacity’ is the key figure. The intermediate values show you *how* that figure was reached by breaking down your monthly income and expenses. Use this information to understand your financial position better. To know how to calculate borrowing power in more detail, this breakdown is essential.
Key Factors That Affect Borrowing Capacity
- Income Level & Stability: Higher and more stable incomes are viewed more favourably. Lenders may ‘shade’ or discount variable income like bonuses or commission.
- Living Expenses: Your declared expenses are cross-referenced against benchmarks like the Household Expenditure Measure (HEM). A frugal lifestyle may not increase borrowing power if your spending is below this floor.
- Number of Dependents: Each dependent significantly increases the assumed living expenses, which directly reduces your net serviceable income.
- Existing Debts & Credit Limits: Every dollar of existing monthly repayment reduces your capacity. Importantly, the entire limit on your credit cards is considered a potential debt, not just the current balance. Reducing limits can increase your borrowing power.
- The Assessment Rate Buffer: Mandated by regulators (like APRA in Australia), this buffer (currently ~3%) is the single biggest factor in reducing borrowing capacity compared to a calculation using the actual advertised interest rate.
- Loan Term: A longer loan term (e.g., 30 years vs. 25 years) results in lower monthly repayments for the same loan amount, which can increase your maximum borrowing capacity.
Frequently Asked Questions (FAQ)
- 1. Why is the calculator’s result lower than I expected?
- This is almost always due to the assessment rate buffer. Calculators that don’t include a buffer give an inflated, unrealistic sense of borrowing power. Our calculator provides a more conservative and realistic estimate used by lenders.
- 2. How is ‘Living Expenses’ calculated? It seems high.
- Lenders use a standardised benchmark like the HEM, which is a statistical measure of median household spending. They will typically use the higher of either your declared expenses or this benchmark figure. This calculator uses a simplified model of that benchmark based on income and dependents.
- 3. How can I increase my borrowing capacity?
- The most effective ways are to pay down existing debts (personal loans, car loans) and reduce the limits on your credit cards. Increasing your income or adding a second applicant also has a major impact. Learn more about how to increase your borrowing capacity with our guide.
- 4. Does my savings history affect the serviceability calculation?
- While a strong savings history is crucial for your deposit and demonstrates financial discipline, it doesn’t directly enter the serviceability formula itself. The formula focuses on your monthly cash flow (income vs. expense).
- 5. Why is my entire credit card limit included, even if I pay it off each month?
- Lenders must assess a worst-case scenario where you have maxed out your available credit. A percentage of the total limit (typically 3-5%) is therefore treated as a monthly repayment commitment.
- 6. Is this calculator’s result a guarantee of a loan?
- No. This is an estimation tool only. A formal loan application involves a full credit assessment, verification of all information, and is subject to the lender’s final approval.
- 7. What is Lenders Mortgage Insurance (LMI)?
- LMI is insurance that protects the lender (not you) if you default on your loan. It’s usually required if you borrow more than 80% of the property’s value. The Genworth serviceability calculation is a key part of getting LMI approval.
- 8. Does HECS/HELP debt affect my borrowing capacity?
- Yes. Although it’s not a standard ‘loan’, lenders factor in HECS/HELP repayments as a recurring expense, which reduces your net income and thus your borrowing capacity. This calculator accounts for it in the tax and net income calculation.