A borrowing capacity calculator is a good indicator of how much your client can borrow, but it is not the definitive answer. It is reliable, but only up to a certain point.
Are the results provided by a calculator accurate?
The results provided by a borrowing calculator aren’t technically inaccurate; they may be just incomplete. They may not always use the same factors lenders do when they calculate borrowing capacity. Calculators that do use the same factors and use the same equation may not see the complete picture. Some online borrowing calculators use the same percent error that lenders use, providing a more accurate estimate of your client’s borrowing power.
What else do lenders consider?
When calculating your client’s borrowing power, most lenders use existing mortgages, credit cards, other loans your client may have, and your client’s living expenses. In addition, they may also use tax and medicare rates and may include a buffer, which are funds left over your client can use to make repayments if financial difficulties arise.
While borrowing capacity calculators are generally accurate, they are only supposed to be used as an estimation tool. Its calculation is only as good as the information provided. Your client should always consult with a mortgage broker to get a complete picture of their borrowing power.
Mortgage Street can help your client get a complete picture by factoring in costs of living changes and actual living expenses. We can also help your client understand their entire financial situation, whether they can afford to borrow as much as a calculator tells them they can, and can factor in the errors lenders may make when assessing borrowing capacity. In addition, our team of brokers can determine whether lenders will use your client’s serviceability when considering their borrowing power, which could impact their application.