Bank Test Rates Explained: The Hidden Factor Behind Your Borrowing Power

When you apply for a home loan, the bank doesn’t assess your repayments at the interest rate you’ll actually get.

Instead, they use something called a test rate.

This is a higher interest rate used to check whether you could still afford your loan if rates increase in the future.

A test rate is the interest rate banks use to assess your affordability — not your actual repayments.

Right now, test rates are typically around 2.5% to 2.75% higher than the fixed rates being offered.

So even if you secure a rate in the 5% range, the bank may assess your loan closer to 6.5%–7%+.

When interest rates rise, banks typically increase their test rates as well.

This can have a direct impact on your borrowing power:

• You may qualify for less lending

• Your application may become tighter on affordability

• In some cases, it can be the difference between approval and decline

Even small changes can make a noticeable difference.

Let’s look at a simple example.

Loan Amount: $600,000
Term: 30 years

Borrowing Power Comparison

Even though the repayment the bank is testing stays roughly the same, a higher test rate means the bank has to reduce the loan amount to keep it affordable.

In this example:

• A 0.25% increase in the test rate reduces borrowing power by roughly $15,000

• A 0.50% increase in the test rate can reduce borrowing power by roughly $25,000–$30,000

A 0.25% increase in test rates can reduce borrowing power by roughly $2,000–$3,000 per $100,000 of lending
A 0.50% increase in test rates can reduce borrowing power by roughly $4,000–$6,000 per $100,000 of lending

Test rates are one of the biggest factors affecting your borrowing power — and they can change without you doing anything.

This means:

• Your borrowing position can shift as rates move

• Timing can play a role in how much you can borrow

• Structuring your lending correctly becomes more important

You’re not assessed on today’s interest rate — you’re assessed on a higher “what if” rate.

That’s why two people on the same income can get very different results depending on when they apply.

If you’re thinking about buying, it’s worth understanding where test rates currently sit and how they may impact your position. Each bank generally has a different "test rate" so what you can potentially borrow may differ from bank to bank.