How Interest Rates Actually Affect What You Can Borrow
“Interest rates are up!”
You hear it all the time on the news, but what does it really mean when you’re trying to buy your first home?
At Nude Home Loans, we help first home buyers understand how interest rates affect your borrowing power — not just your monthly repayment.
Let’s break it down.
📉 What Is Borrowing Power?
Borrowing power = how much a lender is willing to lend you based on:
Your income
Your living expenses
Your existing debts
The current interest rate (plus a buffer — more on that below)
In short: the higher the interest rate, the less you can borrow. And vice versa.
💡 What’s the Interest Rate Got to Do With It?
When interest rates go up, your future repayments increase. So banks use a “serviceability test” to check if you can still afford the loan.
They’ll usually:
Calculate repayments at today’s rate + a 3% buffer
See if your income can comfortably cover that
Even a small rate rise can cut your borrowing power by tens of thousands.
📊 Real Examples
Let’s say you earn $90,000 and have no other debts.
Interest Rate | Estimated Borrowing Power |
|---|---|
5.5% | ~$600,000 |
6.0% | ~$565,000 |
6.5% | ~$535,000 |
That’s a $65,000 swing — just from a 1% increase in rates.
🔍 How Banks Calculate It (Serviceability 101)
Lenders use a few key numbers:
Your gross income
Your living expenses (declared + benchmarked)
Other debts (credit cards, car loans, Afterpay etc.)
The loan term (usually 30 years)
The assessment rate (interest rate + 3%)
They’ll test your ability to repay the loan at this higher rate — even if the actual rate is lower today.
Why? Because they want to make sure you can handle future rate rises.
🤔 So… Should You Wait for Rates to Drop?
Not necessarily.
Here’s what we tell our Nude clients:
If you’re ready now, and the repayments work, don’t wait
If you qualify for grants/schemes now, take advantage
We can help you structure your loan to handle future changes
Rates go up and down — but property prices can rise while you wait.
Sometimes it’s smarter to buy at a slightly lower borrowing limit than risk being priced out later.
🧠 Strategy Matters More Than Rate Chasing
We help clients:
Choose between fixed vs variable based on risk comfort
Split loans to manage flexibility
Offset accounts to reduce interest while keeping access to cash
The key is not just “what’s the rate?” but “what’s the plan?”
🏡 Real Example: Asha & Jordan, First Home Buyers in VIC
They came to us hoping to borrow $700k. Rates had recently increased and they could now only borrow $640k.
We:
Adjusted their target suburbs
Used the First Home Guarantee to reduce upfront costs
Found a property they loved for $615k — with change to spare
“The rates made us nervous, but Nude gave us a plan that actually worked.”
✅ Let’s Check Your Borrowing Power Today
We’ll:
Run the real numbers based on current rates
Check grants + schemes to boost your options
Build a smart loan strategy around your goals
👉 [Book your free borrowing power review with Nude Home Loans]
No guesswork. Just clarity, confidence, and a plan.
