RATES DOWN. BORROWING POWER UP.
- namchau
- May 14
- 2 min read
Your Borrowing Power Will Increase If Rates Continue to Decrease
As interest rates begin to show signs of easing, many prospective homebuyers are wondering what this means for their ability to borrow. One of the most immediate impacts of a rate cut is a potential increase in borrowing power — and that can make a big difference in your home buying journey.
How Banks Assess Borrowing Power
When a lender assesses your home loan application, they use an “assessment rate” — a figure designed to ensure you can still afford your repayments even if rates rise in the future. This rate typically includes a buffer of 3% on top of the actual market interest rate.
For example, if the current market rate is 5.89%, lenders assess your application at 8.89%. If rates drop by 0.25%, the new assessment rate becomes 8.64%. While that change may seem small, the impact on borrowing power can be significant.
Real-World Impact: A Case Study
Let’s break it down:
A single applicant earning $80,000 per annum with no debts can currently borrow approximately $413,500 at an assessment rate of 8.89%.
If interest rates drop by 0.25%, their borrowing capacity increases to $423,500.
With a 0.50% rate cut, borrowing power rises further to $432,800.
That extra $10,000 to $20,000 in borrowing capacity might be the difference between buying in your preferred suburb or having to compromise.
Why This Matters Now
As we enter a period where rate cuts may be on the horizon, it’s the perfect time to review your Home Buying Plan and revisit your borrowing capacity. Understanding your position now can help you move quickly when the right property comes along — especially in competitive markets where every dollar counts.
At Ascot Mortgage, we can work out your updated borrowing power based on current and anticipated interest rates. If you're planning to enter the market soon, this insight can give you a real advantage.
Ready to Recalculate Your Borrowing Power?
We’re here to help you understand how rate movements impact your home loan eligibility. Reach out today for a free Home Buying Plan — it’s your first step towards buying with confidence.
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