Boosting Your Borrowing Capacity: What Falling Interest Rates Mean for You

After years of interest rate hikes and a cost-of-living crunch, many Australian homeowners – and those dreaming of becoming one – are finally starting to breathe a little easier. With inflation beginning to ease and the Reserve Bank cutting rates for the first time in a long while, some much-needed relief is here. But these rate reductions don’t just mean lower mortgage repayments – they could also help increase your borrowing capacity, making it easier to buy or refinance a home.

Whether you’re already on the property ladder, looking to upgrade, build a property portfolio or hoping to get your foot in the door for the first time, this could be the window of opportunity you’ve been waiting for.

Let’s break down what borrowing capacity means, how interest rate changes affect it, and what else you can do to boost your buying power.

What Is Borrowing Capacity?

Borrowing capacity refers to the amount of money a lender is willing to let you borrow based on your current financial situation. It’s influenced by factors like:

• Your income (and your partner’s, if applying jointly)
• Living expenses
• Existing debts
• Credit history
• The size of your deposit
• The interest rate on the loan

Lenders want to ensure you can comfortably meet your repayments, so they assess your ability to repay based on current lending criteria and rates. The higher your borrowing capacity, the more you’re able to spend on a property, or the more flexibility you have when refinancing.

How Falling Interest Rates Can Improve Borrowing Power

One of the key levers that affects your borrowing capacity is the interest rate on your loan. The lower the rate, the lower your monthly repayments, so lenders can justify offering you a higher loan amount.

For example:

• At a 6 per cent interest rate, your repayments on a $600,000 loan might be around $3,600 a month.
• If the rate drops to 5 per cent, those repayments might fall to roughly $3,200.
• That $400 monthly difference can significantly increase the amount a lender is willing to approve.

For prospective buyers, this can make previously unaffordable properties an option. And for current homeowners, it could be the right time to refinance – either to reduce repayments, consolidate debt, or release equity for renovations or investments.

With more cuts expected in the months ahead, it’s worth reviewing your numbers and exploring how this impacts your individual situation.

Other Ways to Boost Your Borrowing Capacity

Interest rates aren’t the only factor influencing your borrowing power. There are several other steps you can take to maximise your capacity – some quick wins, and some that take a bit of planning.

Improve Your Credit Score

Your credit score gives lenders insight into your financial reliability. A healthy score can not only boost your borrowing potential but may also give you access to more competitive interest rates. To improve it:

• Always pay bills and loans on time
• Limit credit enquiries (too many applications can look risky)
• Reduce your credit card limits if you’re not using them

Increase Your Income

Earning more is an obvious way to boost what you can borrow. This could mean:

• Taking on extra shifts or overtime
• Documenting consistent bonuses or commissions
• Starting a side hustle (if the income is regular and verifiable)

Make sure you can demonstrate consistent income over a period, as lenders look for stability.

Reduce Your Debts

The less debt you have, the more capacity you have for a new loan. Consider:

• Paying off personal loans or car finance
• Closing unused credit cards
• Avoiding Afterpay or ‘buy now, pay later’ services, which are seen as liabilities

Every repayment you remove from your monthly budget is a step closer to increasing your borrowing power.

Trim Your Living Expenses

Lenders now take a close look at your living expenses. While it might feel like splitting hairs, cutting back on discretionary spending (subscriptions, dining out, online shopping) can make a real difference in how your application is assessed.

Some brokers recommend keeping a tight budget for three months before applying, as it shows discipline and makes your application more appealing.

Consider a Joint Application

If you’re buying with a partner, combining incomes can increase the total amount you’re eligible to borrow. Just be sure you’re both on the same page when it comes to money management and financial goals.

Use a Mortgage Broker

Navigating lending criteria can be tricky. That’s where Inovayt comes in.

Our experienced mortgage brokers work with a wide panel of lenders, meaning we can match you with a home loan that suits your unique financial position and goals. We’ll help you present the strongest application possible, and maximise your borrowing potential in the process.

Is Now a Good Time to Refinance?

Now is the perfect time to refinance, as refinancing during a falling interest rate environment can help you:

• Secure a better rate
• Lower your monthly repayments
• Access equity for renovations, investments, or other big expenses
• Consolidate other debts into one manageable repayment

Plus, if your borrowing power has improved, you may now qualify for a loan product or lender you didn’t before.

At Inovayt, we can review your current loan and compare it with other options on the market, taking the hassle out of the process and potentially saving you thousands over the life of your loan.

Can the Inovayt Team Help Me Understand My Borrowing Capacity?

Falling interest rates are a breath of fresh air after a tough couple of years, but knowing how to take advantage of them is key.

If you’re wondering how much you could borrow, whether now is the right time to refinance, or simply want to talk through your options with an expert, the team at Inovayt is here to help. We’ll guide you through the process, explain things clearly, and help you make confident, informed decisions.

Your dream home (or a better financial future) might be closer than you think. Get in touch with the experts at Inovayt today to take the next step.