How to increase borrowing capacity before refinancing

What the serviceability buffer is and how it reduces how much you can borrow

Here is how it works in practice. A lender cannot simply check whether a borrower can afford repayments at today's interest rate. It must assess repayments at the loan's interest rate plus 3 percentage points, or a floor rate set by the lender, whichever is higher. Every authorised deposit-taking institution (ADI) in Australia must apply this rule.

This is not optional. Switching lenders does not remove the buffer. However, different lenders set different floor rates and use different expense models, which can shift the outcome.

Here is what the buffer looks like in dollar terms. A $600,000 loan at a 6.5 per cent contract rate has principal-and-interest repayments of about $3,792 per month over 30 years. But the lender does not assess at 6.5 per cent. It assesses at 9.5 per cent (6.5 per cent plus 3), which lifts the assessed repayment to about $5,045 per month.

That gap directly reduces the maximum approved loan amount. A borrower who can comfortably afford $3,792 per month may not pass the servicing calculator test at $5,045. This is the core mechanic behind most refinance knock-backs in 2026, and it is why understanding home loan serviceability matters more than the headline rate. It is also worth noting a newer constraint: from 1 February 2026, APRA limits each lender to writing no more than 20 per cent of new mortgages at a debt-to-income ratio of six times income or higher, so a large total debt can stall an application even when the repayments look affordable.

How credit card limits affect your home loan borrowing power

This one catches people off guard. The impact of credit card limits on home loan borrowing power is significant, and it has nothing to do with how much is actually owed.

Lenders assess credit card liabilities based on the full approved credit limit, not the outstanding balance. A $20,000 credit card with a zero balance is treated the same as a $20,000 card that is maxed out. ASIC's MoneySmart guidance confirms this approach.

The maths is straightforward. Lenders typically assess a minimum monthly repayment of 3 to 3.8 per cent of the total credit limit. A $20,000 limit assessed at 3 per cent creates a $600 per month deemed liability. Run that through a servicing calculator at a 9.5 per cent assessment rate, and it can reduce borrowing capacity by roughly $80,000 to $100,000.

Steps to take before applying:

• Request a limit reduction on any card kept for convenience
• Cancel unused cards entirely rather than leaving them open
• Allow 30 days for the closure to appear on the credit file
• Check the credit report to confirm the change has been recorded

Other debts and liabilities that reduce loan serviceability

Credit cards are not the only liability that chips away at borrowing power. Several other commitments reduce loan serviceability in ways borrowers do not always expect.

Buy now pay later (BNPL) accounts are included in serviceability assessments. Some lenders assess the full facility limit similarly to credit cards. Close or pay out BNPL accounts before applying. Even a small Afterpay or Zip balance can create a deemed monthly liability that reduces capacity.

Personal loans and car loans each carry an assessed monthly repayment that directly reduces borrowing power. Where possible, prioritise paying down or closing these before a refinance application. A $15,000 car loan with $400 per month repayments has a measurable impact on the servicing calculator.

HECS-HELP debt is assessed on the compulsory repayment that applies once income passes the threshold. For 2025-26, that threshold is $67,000, rising to $69,528 for 2026-27, and repayments are now calculated marginally on income above it rather than as a flat rate on total income.

Living expenses and the HEM floor. Lenders use the Household Expenditure Measure (HEM) as a benchmark. If a borrower declares expenses below HEM, the lender automatically substitutes HEM. ASIC's MoneySmart guidance on budgeting and spending is a useful starting point for reviewing this. Declaring unrealistically low expenses does not improve serviceability. It just gets overridden.

How to evidence your income so the servicing calculator works in your favour

Income documentation is where many refinance applications stall. Under ASIC's responsible lending obligations, lenders must make reasonable inquiries about a borrower's financial situation and verify that information. Having the right documents ready before the first conversation saves weeks.

PAYG employees:

• Two most recent payslips (showing year-to-date earnings)
• Most recent PAYG payment summary or income statement from MyGov
• Employment contract if recently started a new role

Self-employed borrowers:

• Two most recent years of personal tax returns
• Two most recent years of business tax returns (if applicable)
• Corresponding ATO Notices of Assessment (NOAs) for each year
• Business Activity Statements (BAS) for the current period

The ATO issues Notices of Assessment after processing a tax return. For self-employed borrowers, the NOA is the authoritative document confirming taxable income declared to the ATO, and lenders require it alongside the returns. Working with a broker who specialises in self-employed applicants matters when income is harder to evidence through standard payslips, which is an area Stryve Finance focuses on.

The gross figure on a payslip is not what the lender counts. Lenders “shade” variable income, crediting only a percentage of it to the servicing calculator. APRA's prudential guidance (APG 223) is the basis for this: non-salary income such as overtime, bonuses, commission and rent is commonly discounted by at least 20 per cent. The table below shows how that plays out on $20,000 of income.

Understanding this before applying avoids surprises. A borrower earning $20,000 a year in overtime may only have $10,000 to $16,000 of it recognised, which can be the difference between an approval and a decline.

Does equity increase borrowing power?

This is one of the most common questions, and the answer has two parts.

Equity determines how much a lender will lend against the property. This is expressed as the loan-to-value ratio (LVR), which is the loan amount as a percentage of the property's assessed value. Strong equity supports a larger loan size and may remove the need for Lenders Mortgage Insurance (LMI), which is typically required when LVR exceeds 80 per cent.

But equity does not override a serviceability shortfall. A borrower could have $300,000 in equity and still be declined if their income, expenses, and liabilities don't pass the servicing calculator at the buffer rate. Equity and serviceability are separate levers. Both need to stack up.

A bank valuation sets the equity position, not the borrower's estimate. Understanding how to estimate your property value matters because both the valuation and the serviceability assessment must clear for a refinance to be approved.

How a broker uses a servicing calculator across multiple lenders

Each lender runs a slightly different servicing calculator. Expense benchmarks, income shading rules and floor rates all vary. The same borrower, with the same income and debts, can get materially different results across lenders.

This is where a broker adds value. With access to a large panel of lenders, a broker can run a borrower's profile through multiple servicing calculators to find the lender whose model best suits their income and liability profile. One lender might shade over time at 50 per cent. Another might credit 80 per cent. That difference alone can shift borrowing capacity by tens of thousands of dollars. Stryve Finance compares lender policies side by side to find the fit that gives a borrower the most capacity.

Lender commission transparency matters here. A broker's recommendation should be based on fit, not commission. No hidden fees, no steering towards a lender that pays more.

Note for investors: This guide is written for owner-occupiers refinancing an existing home loan. Borrowers growing a property portfolio have different serviceability considerations. See the guide on increasing borrowing capacity for investors for portfolio-specific strategies.

Check your borrowing capacity before applying. Test your borrowing capacity with a calculator to see where you stand after applying these tips.

Your pre-refinance borrowing power checklist

Make these changes at least 30 to 90 days before applying so they are reflected in bank statements and credit files.

• Close or reduce credit card limits: Cancel unused cards. Request limit reductions on cards kept for daily use.
• Pay out BNPL accounts: Close Afterpay, Zip and similar facilities entirely.
• Pay down personal loans and car loans where possible, or factor their repayments into the serviceability assessment.
• Gather income documents by employment type: PAYG: payslips and payment summary. Self-employed: two years of tax returns plus ATO NOAs.
• Review three months of bank statements: Reduce discretionary spending that inflates assessed living expenses.
• Check the credit report: Confirm closed accounts are showing as closed. Dispute any errors.
• Allow processing time: Credit file updates and bank statement cycles need 30 to 90 days to reflect changes.

Once borrowing power is sorted, the next step is understanding how the refinance process works and what to expect at each stage.

Ready to refinance? Explore how refinancing your home loan works with Stryve Finance and whether it is the right move.

Frequently Asked Questions

What is a serviceability buffer?

It is a mandatory stress test applied by all lenders in Australia. APRA requires repayments to be assessed at the loan's interest rate plus 3 percentage points, or a lender-set floor rate, whichever is higher. The level has been 3 per cent since October 2021 and was reaffirmed in 2026.

What is the difference between the serviceability buffer and a floor rate?

The buffer is a margin added to the actual loan rate (rate plus 3 percentage points). A floor rate is a minimum assessment rate the lender applies regardless of how low the loan rate is. The lender assesses at whichever is higher. So if a loan rate plus the buffer sits below a lender's floor, the floor rate is used instead, which is why the same borrower can be assessed differently by different lenders.

Do credit card limits affect borrowing power?

Yes. Lenders count the full approved credit limit, not the balance owing. A $20,000 limit with nothing owed is assessed as if the full amount could be drawn at any time, creating a deemed monthly liability of roughly $600 to $760 that directly reduces how much can be borrowed.

How do lenders calculate home loan serviceability?

They take verified income, subtract assessed living expenses (using HEM as a floor) and all existing debt obligations, then test whether the surplus covers the proposed repayment at the buffer rate. If it does, the loan passes; if not, the amount is reduced or declined.

Does equity increase borrowing power?

Equity supports the loan size a lender will offer and can remove the need for LMI, but it does not improve serviceability. A borrower with significant equity can still be declined if their income and liabilities do not pass the servicing calculator at the assessment rate. Equity and serviceability are separate tests.

How much can I borrow if I refinance?

The amount depends on income, liabilities, living expenses and the specific lender's servicing calculator. Because each lender uses different shading rules and expense benchmarks, results vary. Use the borrowing capacity calculator for an estimate, then speak with a broker to run the numbers across multiple lenders.

This article provides general information only and does not constitute financial advice. Borrowers should consider their own circumstances and seek independent advice before making financial decisions.