Borrowing power, when the lender is looking at equity

With a bank, borrowing power is a serviceability question. It is worked out from income, expenses, existing commitments and a buffer rate, and the answer often has very little to do with whether the loan would actually be repaid. A profitable business can fail that test in a bad quarter. A business with a large receivable and a short gap can fail it for a fortnight.

Here it is an equity question. What is the property worth, what is already secured against it, and what is left. That is the whole of it, and it is why a business the bank has just declined can get a yes on the same day from the same set of facts.

So the number the calculator gives you is not a prediction about your trading. It is a measurement of the room in your property, after costs, expressed as money you could actually receive.

Borrowing power for a private second mortgage

Most people who use this calculator already have a mortgage, and assume that ends the conversation. It does not. A second mortgage sits behind the existing loan without touching it — no refinance, no renegotiation, no conversation with your bank. What is already owing simply comes off before we look at what is left.

Put the total owing into the second field, whoever it is owed to, and the answer accounts for it. That is the same calculation whether the first mortgage belongs to a major bank, a credit union or another private lender.

Borrowing power when the timing is the problem

A great many of these are urgent: a settlement in four days, a supplier who has stopped delivering, a tax deadline, a contract that falls over if the money is not there. An urgent second mortgage and an ordinary one are the same loan — what changes is how quickly the security can be registered and the funds released, and that can be as little as 24 hours.

Which is exactly why knowing your borrowing power before you make a call matters. If there is room, a deadline four days out is comfortable. If there is not, you want to know that on day one rather than day three.

Borrowing power when your credit file is not perfect

Defaults, judgments, arrears with another lender, an ATO debt, tax returns not lodged — none of those change what a property is worth, so none of them change the number above. They are context for a conversation, not a test to pass.

That is the single biggest difference between this calculator and the ones on bank sites. It is not asking you anything about yourself. It is asking about the property.

What the one number means

One figure, and it is the only one worth having at this stage: what you could actually receive. Fees and the prepaid interest are already taken off it, so it is what would reach your account rather than a headline that shrinks on settlement day. Ask for six months and six months of interest is already inside it, which is why a business with tight cash flow can take one of these without repayments starting the day the money lands.

Ask for longer than six months and it still only sets aside six. That is deliberate. The term is open — hold the loan as long as you like and repay whenever it suits — but prepaying a year of interest would eat into your funds for no reason, so we do not do it.

What changes the limit

• Residential — a house, a unit, a townhouse. Up to 80% of value where the property is worth more than $800,000, and up to 75% at or below that.
• Commercial — an office, a shop, a warehouse, a factory. Up to 70% of value.
• Vacant land — up to 70% of value.
• Large acreage — a rural holding or a farm on a large title. Up to 50%, because the buyer pool is smaller and that is what sets the limit.

If it says yes

Then the rest is short. One call to tell us the situation, an indicative answer usually on that same call, about fifteen minutes of documents, and funding in as little as one business day. No valuation, no financials, no credit score threshold.

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If it says no

A calculator works on the figures typed into it, and a property value is an opinion until somebody looks. If it is close, call us — 1300 93 83 87, Mon–Fri, 8:30am – 5:30pm Melbourne time. A second opinion on the value, a second property, or a different structure can change the answer, and none of those fit in four input boxes.

And if the honest answer is that there is not enough equity, we will say so. Amounts run from $20,000 to $5,000,000, and a loan that cannot be repaid is not a favour to anybody.

Reviewed by Jason Brockmuller, Joint Chief Executive