How Much Can You Safely Borrow? A Worked Capacity Calculation

Lenders calculate what you can borrow. This calculation shows what you can carry, which is a different and more useful number.

A financier calculates the maximum they will advance based on their policy. That figure answers their question about risk, not yours about resilience. The calculation below produces the number that matters to you.

The situation

A borrower wants to know what level of obligation they can carry comfortably, including under adverse conditions, before approaching a financier.

Assumptions (illustrative)

• Monthly income after tax and fixed deductions: SAR 32,000.
• Essential monthly living costs: SAR 14,000.
• Existing monthly obligations: SAR 3,500.
• Desired monthly savings and reserve contribution: SAR 4,000.
• Assumed income reduction in an adverse scenario: 25 per cent.
• All figures are illustrative assumptions used to demonstrate the method.

Step 1: Surplus before new obligation

SAR 32,000 less SAR 14,000 less SAR 3,500 less SAR 4,000 equals SAR 10,500.

This is what is genuinely available, after living costs, existing obligations and the saving you intend to continue.

Step 2: Applying a comfort margin

Committing 70 per cent of the surplus gives SAR 7,350 per month.

Committing the entire surplus leaves nothing for irregular costs, which arrive whether or not they were budgeted.

Step 3: Testing against reduced income

A 25 per cent income reduction gives SAR 24,000, less SAR 14,000 and SAR 3,500 equals SAR 6,500 available.

Under this scenario, an obligation of SAR 7,350 would not be serviceable without reducing living costs or suspending saving.

Step 4: The resilient commitment

Sizing the obligation at SAR 6,000 keeps it serviceable under the adverse scenario with a small margin.

This is the number to plan around. It is lower than the maximum available and it survives the scenario that actually threatens you.

Step 5: Translating to an amount

At an assumed SAR 1,250 per month per SAR 100,000 borrowed over a given term, SAR 6,000 supports roughly SAR 480,000.

The conversion depends entirely on rate and term, which is why the monthly capacity is the stable figure and the amount is derived from it.

Step 6: Comparing with the assessed maximum

A financier might assess capacity at SAR 9,000 or more per month on the same income.

The gap between what you may be offered and what you can carry is the space where financial difficulty is created.

What changes the answer

• Variable income requires a more conservative assumption than a stable salary.
• Family circumstances that could change living costs should be tested rather than assumed stable.
• A variable rate arrangement should be tested at a higher rate than the current one.
• Existing obligations ending during the term improve capacity, but only from the date they actually end.

What the numbers tell you

• Size the obligation from your surplus under an adverse scenario, not from the maximum offered.
• Continue saving through the obligation, since the reserve is what prevents a difficulty becoming a crisis.
• Convert monthly capacity into an amount, rather than starting with an amount and checking affordability.
• Treat the gap between assessed maximum and resilient capacity as a warning rather than as headroom.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

If you are weighing a financing decision, Domira can review the offers, model the total cost and stress test the obligation with you before you sign anything.