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How much can I borrow for a home loan? (Part 2)

Part 2: Uncomitted Monthly Income

To keep this article to the point - we are going to assume all other criteria is met for lendability such good credit history, account conduct and you have the minimum deposit required. See Part 1 of this article to understand factors that makes you more lendable.

To understand how much you can borrow, banks measure your UMI (Uncommitted Monthly Income) or an equivalent metric. 

What is UMI?

UMI = Monthly Income - Monthly Household Expenses - Expected Monthly Home Loan Repayments - Monthly Debt Obligations

The UMI is the amount of money left over after your income has paid for your household expenses, your mortgage repayments and your other debts.

Some banks are happy for UMI to be $0 and other banks require a higher figure (up to $1,000 in some cases). Each bank has their own UMI calculator that Mortgage Advisers (known as Mortgage Brokers) use to calculate your borrowing capacity with each lender.

Borrowers are encouraged to engage with a Mortgage Adviser, as they know which bank UMI calculator, lending criteria and bank specific requirements that are optimal for you. 

This article will cover off the four main components that contribute towards UMI calculations:

  • Income

  • Household Expenses

  • Home Loan Repayments

  • Debts

Income and Employment

The bank needs to ensure there is enough income to repay the loan, pay for your expenses and debts. They also want to see that you will sustain employment into the future.

If you are self-employed - you will need to provide two-years of financials to prove income sustainability.

Needless to say, the higher the income, the more you can borrow. 

Interest Rates and Stress Testing (Home Loan Repayments)

The bank considers the current and potential future interest rates. They will conduct a ‘stress test’ as part of their calculations to determine whether you can afford to repay your home loan at a higher interest rate than current market rates.

This is to make sure that you won't default on your home loan repayment obligations if interest rates increase. The ‘stress test interest rate’ is usually around 1.5% to 2% higher than the 1-year rate. 

Banks are required to adhere to responsible lending practices, and part of this involves ensuring that borrowers can comfortably afford the loans they are seeking

The higher the interest rates, the less you will be able to borrow. 

Household Expenses

Evaluating household expenses provides the bank with more comprehensive understanding of your financial picture. It allows them to consider not just your income but also your financial responsibilities and spending habits.

By examining your household expenses, banks can gauge how much of your income is already committed to existing financial obligations, such as utility bills, groceries, transportation, insurance, and other living expenses.

They will also ask about expenses you will incur after purchasing your home that you didn’t have before such as council rates, home insurance and body corp.

This assessment helps them determine how much you can comfortably allocate to mortgage repayments without causing financial strain.

Banks will request three to six months of your bank statements to verify your expenses and determine your spending habits.

It goes without saying that the more expenses you have, the less you can borrow. 


Having debt will impact the amount the bank is willing to lend you. Debts such as student loans, credit cards, personal loans, hire purchase and buy-now-pay-later (BNPL) arrangements are examples of debts that should be exterminated or well managed before applying for a home loan.  

  • Student loans – have the biggest impact on reducing your lending. It is highly recommended to pay this off as soon as possible.  

  • Personal loans and Hire Purchase – will have a significant impact on reducing your lending. It's highly recommended to apply for a home loan without any personal loans.  

  • Credit cards – are not a big issue if they’re kept under control and used responsibly. The ideal way to use your credit card is to pay it off in-full each month. Note that the larger the credit card limit, the greater the reduction to your lending, even if you never use your card! It’s best to have a low limit or not have one at all.

  • Buy-now-pay-later arrangements (BNPL) – A bit like credit cards, it should be used responsibly. Ideally, it’s best to have this paid off and have your BNPL accounts closed.  

  • Debts to IRD – there should be no debts owing to IRD. This can prevent you from getting a home loan.  

The more debts you have, the less you can borrow and decreases the chances that you will be viewed as 'lendable'.

If you would like to chat to us about your home loan options - please feel free to contact us.

Click here to go to Part 1 of this article. 


The information contained in this article is general information and is not intended to be financial, legal or tax advice. Vive Financial Services Limited and Jith Rajenthiram accept no liability for any loss caused as a result of any person relying on any information in this guide. Before making any financial decisions, you should consult a mortgage adviser or an appropriate professional. 


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