For your next application, you will be aware of the proposed loan interest, generally called the SVR.
Standard Variable Rates (SVR) are driven by the Reserve Bank of Australia (RBA) cash rate. The bank’s profit is the gap between the RBA rate and their SVR.
Although this is important, there is a third, and most important – the Assessment Rate
The assessment rate is another rate – which is the banks ‘safety blanket’. Its considered anÃ‚Â extra 2-4 percentage points higher than the SVR. Right now, many experts say you can safely use 7.5% as an assessment rate.
Lots of people do the math on the SVR, and confused why they are being denied a loan. If you are doing some personal calculations – you need to factor in the assessment rate.
In an open letter to all Authorised Deposit-Taking Institutions (ADIs), APRA stated that it wanted a serviceability buffer of at least 2% applied when assessing a home loan application, with a minimum floor rate of 7%.
7.5% is a safer factor for personal calculations.
Not all lenders have the same assessment rate.
The rules around assessment rates only apply to ADIs like banks and certain major lenders. Some non-bank lenders have slightly different rules, and may not apply a floor rate when assessing your application because they don’t fall under the jurisdiction of APRA.
If you are unsure if you should consider a non-bank lender, a broker may be a big assistance.