Borrowing power is income vs liabilities, equity isnt taken into consideration.
If you want to use equity, first you need to have enough equity, and secondly you need enough borrowing power to use that equity.
Eg, you have a home worth 1m with a 500k loan. You'd think you have 500k equity to use but most lenders will let you go up to an 80% loan-to-value ratio = meaning there'd be about 300k of usable equity.
Lets say your borrowing power is 600k after taking into consideration all your liabilities. If you wanted to use 60k equity for something (rennovations, a deposit on an investment, etc.) Then now your borrowing power is reduced by the amount of equity you're wanting to use = 540k remaining borrowing power.
The fact that there is 300k of usable equity has no bearing on the borrowing power.
An alternate way of thinking about this is imagine you had a 1m property fully paid off, but only made 20k per year - your borrowing power is limited to how much debt you can service, and in this scenario you can service as much debt that 20k income can bring
Usually yes - because it relates to your ability to service the loan amount, not the security sitting behind it. You might have more borrowing power than you can use, if you don’t have enough security. So don’t add your equity to your “borrowing power”.
Triangle of lending
Acceptable Purpose (can't borrow to buy drugs)
Equity (got to secure that money against something)
Serviceability (likelihood bank thinks you're gonna pay it back)
They'll lend you an amount. That amount can be equity from an existing asset and/or a new loan.
It depends. Equity may help if your limited by LVR, but not if you cant service a bigger loan.
Serviceability is what matters
Equity is part of the loan it just substitutes cash.
I would say including it.
Borrowing power is income vs liabilities, equity isnt taken into consideration. If you want to use equity, first you need to have enough equity, and secondly you need enough borrowing power to use that equity. Eg, you have a home worth 1m with a 500k loan. You'd think you have 500k equity to use but most lenders will let you go up to an 80% loan-to-value ratio = meaning there'd be about 300k of usable equity. Lets say your borrowing power is 600k after taking into consideration all your liabilities. If you wanted to use 60k equity for something (rennovations, a deposit on an investment, etc.) Then now your borrowing power is reduced by the amount of equity you're wanting to use = 540k remaining borrowing power. The fact that there is 300k of usable equity has no bearing on the borrowing power. An alternate way of thinking about this is imagine you had a 1m property fully paid off, but only made 20k per year - your borrowing power is limited to how much debt you can service, and in this scenario you can service as much debt that 20k income can bring
Usually yes - because it relates to your ability to service the loan amount, not the security sitting behind it. You might have more borrowing power than you can use, if you don’t have enough security. So don’t add your equity to your “borrowing power”.
Triangle of lending Acceptable Purpose (can't borrow to buy drugs) Equity (got to secure that money against something) Serviceability (likelihood bank thinks you're gonna pay it back)