When you apply for a home loan, a lender will take a large number of factors into consideration when deciding whether or not to approve your application. The Serviceability assessment determines if you can comfortably “service” the loan repayments after considering all of your income, expenses and liabilities. Each lender has its own risk assessment standards that are used in order to determine serviceability, so no one calculator can be relied upon for an accurate indication of your borrowing power. Our website calculator is one that takes a reasonably conservative approach to borrowing and cannot be relied upon an being accurate; we conduct various serviceability calculations by measuring your obligations and circumstances against each individual lender. and different criteria when it comes to the serviceability standards they will accept. This means that one bank might approve you for a set amount, and a different bank could approve you for a higher or lower value. Banks don’t often make their exact serviceability standards public, but they do tend to calculate serviceability in a similar way.
Calculating ServiceabilityIn general terms, lenders calculate serviceability by adding together your income from all sources, subtracting your expenses and debt liabilities, and then adding in the required monthly mortgage payment.
IncomeYour income can come from numerous sources, such as:
- Salary and wages
- Rental property income
- Investments and dividends
- Centrelink benefits
- Self-employed income
- Rental Income. Since rental (investment) properties can go untenanted for long periods of time, most lenders will accept 75% – 80% of your gross rental income source, although this varies from lender to lender.
- Income from Shares. The share market is volatile and unpredictable. Most lenders will accept 80% of investment income in their assessment of total income, although this varies from lender to lender.
- Overtime. Some lenders will not consider overtime in their assessment, while others might apply a requirement to prove the overtime consistency over a period of time. In some industries, such as the health industry or police services, this is an integral part of income, and most banks recognise this income norm.
- Government benefits. Some lenders may not consider Government benefits.
- Secondary Employment. In most cases, a lender will consider secondary employment if the job has been held continuously for at least one year.