Assumptions

Calculator Information

The Borrowing Power Calculator calculates the maximum amount of loan available based on the income and expenses entered. Default values provided assist in giving an estimate of the expenses and other factors which may determine the amount available for a loan.

Calculator Assumptions

(a) The cost of living expenses are sourced from the Melbourne Institute's Poverty Lines: Australia publication that is updated on a quarterly basis. This calculator takes into account the current cost of living, but does not take into account any expected future changes in the cost of living.

(b) Default extra core expenses for more than 4 dependants - currently set at \$2,880.

(c) Maximum percentage of income available - percentage of income available for paying expenses and servicing proposed borrowing, default currently set at 100%.

(d) Minimum Credit Card Repayment - percentage used to calculate minimum repayment on credit card, default currently set at 3%.

Loan Details

(a) Interest rate increase allowance buffer - calculator has capability to assume a higher interest rate than rate entered by user when determining maximum amount that can be borrowed. This allows for affordability of possible rate increases under the loan. Current version of the calculator uses an interest rate buffer of 1.5%.

(b) Rounding rules for amount of loan - the calculator has the ability to round the maximum loan amount. The default is usually the current setting of the lower \$1,000. Note that the amount of loan is calculated using the interest rate entered, plus any interest rate buffer, and then the resulting loan amount is rounded as required.

(c) Interest rate for loan repayment - monthly repayment is calculated in respect of the rounded loan amount and using interest rate entered, not including any interest rate buffer.

Length of Month

All months are assumed to be of equal length. In reality, many loans accrue on a daily basis leading to a varying number of days' interest dependent on the number of days in the particular month.

Number of Weeks & Fortnights in a Year

One year is assumed to contain exactly 52 weeks or 26 fortnights. This implicitly assumes that a year has 364 days rather than the actual 365 or 366.

Rounding of Amount of Each Repayment

In practice, repayments are rounded to at least the nearer cent. However the calculator uses the unrounded repayment to derive the amount of interest payable at points along the graph and in total over the full term of the loan. This assumption allows for a smooth graph and equal repayment amounts.

Disclaimer

Note: The results from this calculator should be used as an indication only. Results do not represent either quotes or pre-qualifications for the product. Individual institutions apply different formulas. Information such as interest rates quoted and default figures used in the assumptions are subject to change.

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