How Much More Can You Borrow When Rates Fall?

The short answer

As a rough rule of thumb, every 0.5 percentage-point fall in interest rates lifts the maximum loan a lender will offer by roughly 4–5%, and a full 1% point drop by around 8–10%. On a typical assessment, a single borrower might gain around $20,000–$25,000 of borrowing capacity per 0.5% cut, and a couple $40,000–$45,000. That happens because lenders assess your repayments at your rate plus a 3% buffer, so it's the lower assessed repayment that frees up capacity. These are estimates only; your actual number depends on income, expenses, debts and the lender.

How it works in Australia

Lenders don't ask "can you afford the repayment at today's rate?" They ask "can you afford it at a stress-tested rate?" Under APRA's guidance, banks assess new home loans at the product rate plus a serviceability buffer of at least 3 percentage points, a setting APRA confirmed it is keeping in place. So a 6.0% loan is assessed at about 9.0%, and a 5.5% loan at about 8.5%.

When the cash rate and variable rates fall, that assessed rate falls too. Your spare income (income minus living costs, other debts and the Household Expenditure Measure) hasn't changed, but each dollar of repayment budget now "buys" more loan, because the repayment is calculated at a lower interest rate. The buffer amplifies the effect: a 0.5% cut to the product rate is also a 0.5% cut to the assessed rate.

Other limits still apply. From 1 February 2026 APRA also caps how many loans banks can write above six times a borrower's gross income (a debt-to-income limit), so a rate cut won't always translate fully into extra capacity. Your deposit, LVR and LMI still shape what you can actually buy.

Worked example

Take a borrower whose budget comfortably supports about $3,597/month in repayments, the same figure as a $600k loan at 6% over 30 years (P&I). We hold that repayment budget fixed and see how much loan it supports at each assessed rate (product rate + 3% buffer).

Product rate	Assessed rate (+3%)	Max loan (30 yr, same budget)	Actual repayment at product rate
6.0%	9.0%	~$447,000	~$2,680/mo
5.5%	8.5%	~$468,000	~$2,656/mo

A 0.5% drop (6.0% → 5.5%) lifts the maximum loan from about $447,000 to $468,000: roughly $21,000 more, or about +4.6%, on the same repayment budget. A full 1% drop to 5.0% (assessed 8.0%) would push it toward $490,000, close to a 10% increase.

Check the maths yourself: at a 9% assessed rate over 360 months, a $3,597 monthly budget supports a loan of 3597 × (1 − 1.0075⁻³⁶⁰) ÷ 0.0075 ≈ $447,000. Re-run at 8.5% (0.708% monthly) and you get ~$468,000.

Model this in True Loan

True Loan lets you see both sides of a rate change: the bigger loan and what it actually costs to hold.

• Set the loan amount to a figure you're testing (say $447,000), the rate to today's product rate (e.g. 6.0%), term 30 years, monthly P&I. Note the repayment.
• Bump the loan to the higher figure (e.g. $468,000) and drop the rate to 5.5%. You'll see the repayment barely moves, which is the borrowing-capacity effect in action.
• Use the comparison tool to run both scenarios side-by-side, including total interest and the debt/equity/LVR timeline, then share the URL.
• A bigger loan usually means a higher LVR, so check whether you cross an LMI band. If you plan to park savings against the loan, use the dedicated Offset balance input; if you'll pay a bit extra each month, use the separate Extra repayment ($/month) input. They model different things.

True Loan computes repayments, not serviceability, so use it to pressure-test the repayment and total cost of borrowing more, then confirm what a lender will actually approve.

Common questions and mistakes

Does a rate cut increase what I can borrow automatically? No. It increases your assessed capacity, but lenders also apply income, expense, HEM and debt-to-income limits. Existing borrowers don't get a bigger loan unless they refinance or top up.

Is the "$23k per cut" figure exact? No, it's an illustrative average for a single borrower on an average wage. Your figure scales with income and existing commitments.

Should I just borrow the new maximum? That's a personal decision, not one a calculator makes. Borrowing more means more total interest over the life of the loan.

Why does my repayment barely change when I borrow more at a lower rate? Because the lower rate offsets the larger principal, which is exactly why capacity rises.

Does the 3% buffer ever change? It can. APRA reviews it; it's currently 3 percentage points.

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Figures here are estimates for the 2025-26 financial year and general information only, not financial or credit advice. Check official sources such as moneysmart.gov.au and APRA and confirm your borrowing capacity with a lender.