Your Borrowing Power Calculator | ScaleMortgage
Are you looking to buy a new home or investment property? One of the first steps in the home buying process is determining your borrowing power. Knowing how much you can borrow will help you set a realistic budget and narrow down your property search.
But how is borrowing power calculated? And what factors affect your borrowing power?
What is Borrowing Power?
Borrowing power, also known as borrowing capacity, is the maximum amount of money a lender is willing to lend you for a home loan. It is based on your financial situation, including your income, expenses, assets, and liabilities.
Your borrowing power is an important factor to consider when applying for a home loan, as it will determine the amount you can borrow and the type of property you can afford.
How is Borrowing Power Calculated?
Borrowing power is calculated by taking into account your income, expenses, assets, and liabilities. Lenders use a variety of factors to determine your borrowing power, including:
- Income: Your income is a key factor in determining your borrowing power. Lenders will look at your salary, bonuses, commissions, and any other sources of income to determine your ability to repay a loan.
- Expenses: Your monthly living expenses, such as rent, groceries, and bills, will also be taken into account. Lenders will also consider any existing financial commitments, such as personal loans or credit card debt.
- Interest Rate: The interest rate on your loan will also affect your borrowing power. A higher interest rate means higher monthly repayments, which can decrease your borrowing power.
- Loan Amount: The amount you want to borrow will also impact your borrowing power. The more you borrow, the higher your monthly repayments will be, which can decrease your borrowing power.
- Fees and Charges: Lenders may also take into account any fees and charges associated with the loan, such as application fees or ongoing fees.
- Loan Term: The length of your loan term can also affect your borrowing power. A longer loan term means lower monthly repayments, which can increase your borrowing power.
- Financial Situation: Your overall financial situation, including your credit score, credit history, and assets, will also be considered by lenders when determining your borrowing power.
How to Use Our Borrowing Power Calculator
Our home loan borrowing power calculator is a simple and easy-to-use tool that can help you estimate your borrowing power. To use the calculator, follow these steps:
- Enter your income: Start by entering your annual income, including any bonuses or commissions.
- Enter your expenses: Next, enter your monthly living expenses, such as rent, groceries, and bills. You can also include any existing financial commitments, such as personal loans or credit card debt.
- Enter your loan details: Enter the interest rate, loan amount, and loan term you are considering.
- Review your results: The calculator will provide you with an estimate of your borrowing power, as well as your estimated monthly home loan repayments.
Keep in mind that this is just an estimate and your actual borrowing power may vary based on your individual financial situation and the lender’s terms and conditions.
Factors That Affect Your Borrowing Power
Several factors can affect your borrowing power, including:
Income and Expenses
As mentioned earlier, your income and expenses play a significant role in determining your borrowing power. Lenders will look at your income to determine your ability to repay a loan, and your expenses to ensure you have enough money left over to cover your loan repayments.
Credit Score and Credit History
Your credit score and credit history can also impact your borrowing power. Lenders use this information to assess your creditworthiness and determine the level of risk involved in lending to you. A higher credit score and a clean credit history can increase your borrowing power, while a low credit score or a history of missed payments can decrease it.
Assets and Liabilities
Your assets and liabilities, such as savings, investments, and existing debts, can also affect your borrowing power. Lenders will consider your assets as a source of income and your liabilities as a potential risk when determining your borrowing power.
Interest Rates
Interest rates can have a significant impact on your borrowing power. A higher interest rate means higher monthly repayments, which can decrease your borrowing power. It’s essential to consider the current interest rates when determining your borrowing power and budgeting for your home loan.
Tips for Increasing Your Borrowing Power
If you want to increase your borrowing power, there are a few things you can do:
- Improve your credit score: A higher credit score can increase your borrowing power. To improve your credit score, make sure to pay your bills on time, keep your credit card balances low, and avoid applying for too much credit at once.
- Reduce your expenses: Lenders will consider your monthly living expenses when determining your borrowing power. By reducing your expenses, you can increase your borrowing power.
- Pay off existing debts: Paying off existing debts, such as personal loans or credit card debt, can also increase your borrowing power. This will reduce your monthly financial commitments and show lenders that you are responsible for your finances.
- Increase your income: A higher income can increase your borrowing power. Consider asking for a raise, taking on a side hustle, or finding a higher-paying job to increase your income.
- Save for a larger deposit: A larger deposit can increase your borrowing power and reduce the amount you need to borrow. Consider saving for a larger deposit before applying for a home loan.
Conclusion
Knowing your borrowing power is an essential step in the home buying process. Calculate borrowing power calculator and consider the factors that can impact it. Get a better understanding of how much you can borrow and set a realistic budget for your new home.
Remember to always consider your individual financial situation and the lender’s terms and conditions when determining your borrowing power. And if you need help finding the right home loan for your needs, contact ScaleMortgage today.