Assessing Mel and Ronald’s Borrowing Capacity

Mel and Ronald are a dual-income couple who own their home in Craigieburn (PPOR) and an investment property in Pimpama. They’d like to add another property but face borrowing limits due to existing debts and obligations.

Financial Snapshot

• Combined Gross Income: $154,000/year ($57,000 + $97,000)
• Net Income: ~$116,000/year (~$9,667/month)
• Rental Income: $39,000/year (80% assessable = $2,600/month)

Current Loans & Liabilities

• PPOR (Craigieburn): $886,000 @ 4.49% → $3,600/month
• Investment (Pimpama): $524,000 → ~$2,652/month
• Credit Cards: $17,000 limit
• Zip Pay: $8,000

Available Funds

Cash deposit: $50,000
Usable equity (80% LVR on Pimpama): $144,000
Total funds: $194,000

Monthly Commitments

• Living expenses (HEM): ~$4,000/month
• Loan repayments: $3,600 + $2,652 = $6,252/month
• Other liabilities: $827/month (cards + Zip Pay)
• Total commitments: ~$11,079/month
• Surplus capacity: $12,267 (assessable income) - $11,079 = $1,188/month

Borrowing Power Estimate

Using a buffer rate of 8.5% over 30 years (≈ $768.70 repayment per $100k), a $1,188/month capacity equates to a loan of approximately $154,600.

Purchasing Power

• Loan capacity: $154,600
• Implied property value @ 80% LVR: $154,600 ÷ 0.8 ≈ $193,250
• Total purchase budget: $154,600 + $194,000 = $348,600

Key Insights

• Only the investment property yields usable equity; the PPOR is above 80% LVR.
• Existing debts significantly reduce additional borrowing power.
• Debt-to-Income (DTI) is high; many lenders cap DTI at ~6× income.
• Improvement tips:
  • Pay down or reduce Zip Pay/credit-card limits.
  • Shop for lenders with lenient HEM or rental-income policies.
  • Consider using more equity or accepting LMI if you dip below 80% LVR.

Useful Tools & Calculators

• ANZ Borrowing Calculator
• CommBank Borrowing Power
• NAB Estimate Tool
• Westpac Mortgage Calculator
• Financial Success & Property Investment Advice