How a Lower Test Rate Increases Your Borrowing Power
From Aaron’s YouTube: “Test Interest Rate Down! #newzealand #firsthome #kiwisaver ##nzfirsthome #nzmortgage #homeloan #asb”
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Posted 2 June 2025
The short version
- A lower test rate increases how much you can borrow for a mortgage.
- One major bank has lowered its test rate from 7.1% to 6.85% this week.
- This change could boost borrowing power by around $35,000 for a typical family.
- The test rate is used by banks to check if you can afford a mortgage if interest rates rise.
What is a test rate?
The test rate is the hypothetical interest rate banks use to see if you can afford a mortgage, even if rates rise in future. It's one way banks check your ability to handle repayments before approving your loan.
Banks stress-test your finances at this higher rate to ensure you can keep up with payments. If you qualify at the test rate, you’re seen as a lower-risk borrower.
How the change affects borrowing power
One major bank has lowered its test rate from 7.1% to 6.85%. This small change can significantly increase your borrowing power, depending on your financial situation.
For example, a family with two adults, two kids, and a $160,000 pre-tax income could borrow around $35,000 more with this change, assuming a 20% deposit and $1,200 monthly childcare costs. Every little drop in the test rate can make a difference.
What this means for first-home buyers
A lower test rate is good news for first-home buyers, as it increases how much you can borrow without changing your income or expenses. This can make the difference between buying now or waiting longer.
If you're considering buying a home, Aaron recommends getting pre-approved to lock in your borrowing power. This helps you shop with confidence and act quickly when you find the right property.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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