Existing debts

The fourth line of the sum is what the client already owes. The surprise for most clients is that lenders don't care much about what they owe today. They care about what they could owe, and what it would cost to repay.

Credit cards: the limit, not the balance

A credit card with a $20,000 limit and a $0 balance is assessed as though the client could max it out tomorrow. Lenders count a fixed share of the limit as a monthly repayment, typically between 3% and 3.8%, whether or not the card is ever used.

Across the 27 lenders, those two unused cards are counted as $1,440 to $1,560 a month of debt. Turn on the “what if”: closing them before applying lifts the maximum loan by $175k to $210k, at every lenders. That's more than the gap between the most and least generous lender on this client ($69k).

HECS-HELP

A study loan isn't repaid like a normal loan: compulsory repayments are a percentage of income, taken through the tax system. Lenders therefore count the repayment the client's income would trigger, not the balance. A $5,000 HECS debt can cost as much borrowing power as a $60,000 one. Lenders differ on which income they apply the repayment rate to, and a few will look past a debt that is about to be repaid in full, usually with evidence.

Car loans, personal loans and buy now, pay later

Fixed-term loans are usually counted at their actual repayment, although some lenders test them at a buffered rate as well. Buy now, pay later accounts and store cards are increasingly counted like credit cards, on the limit.

Other mortgages

Existing home loans are the biggest debt most clients have, and the treatment varies the most: some lenders use the actual repayment, others re-test the balance at the assessment rate over the remaining term. That difference gets its own section in Module 7, because it's where investors win or lose the most.