1. What is the Atom Bank Affordability Formula?

The Atom Bank Affordability Formula calculates how much a person can afford to borrow based on their income, expenses, and a lending factor. It's commonly used by Australian banks to assess loan applications.

2. How Does the Calculator Work?

The calculator uses the Atom Bank Affordability formula:

Where:

• \( A \) — Affordable amount (AUD)
• \( I \) — Income (AUD)
• \( F \) — Lending factor (dimensionless, typically 0.3-0.6)
• \( E \) — Monthly expenses (AUD)

Explanation: The formula calculates what portion of income remains after expenses that could be used for loan repayments.

3. Importance of Affordability Calculation

Details: This calculation helps both lenders and borrowers determine a realistic borrowing capacity that won't cause financial stress.

4. Using the Calculator

Tips: Enter your gross income, the lender's factor (typically between 0.3 and 0.6), and your monthly expenses. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical lending factor (F) value?
A: Australian banks typically use factors between 0.3 and 0.6, depending on the loan type and risk assessment.

Q2: Should I use gross or net income?
A: Most banks use gross income, but check with your specific lender as policies may vary.

Q3: What expenses should be included?
A: Include all regular monthly expenses: rent/mortgage, utilities, insurance, credit card payments, and other loan repayments.

Q4: Is this calculation definitive for loan approval?
A: No, banks consider many other factors including credit history, assets, and loan-to-value ratio.

Q5: How often should I recalculate my affordability?
A: Recalculate whenever your income or expenses change significantly, or at least annually.