Want to know if you can get that loan?

Serviceability – The Absolute easiest free guide

What is it: The core factor if you get finance or not. If you can ‘service’ a loan = if you can pay loan payments

Why is it important: In the last 5 years, the test for serviceability has continued to become more difficult.

How: APRA says when to ‘tighten’ serviceability. These are the factors they use. It has two main steps (bottom of post)

Who: Every lender test serviceability – and the amount offered is a huge range. APRA found:
✔️ the most generous lender was prepared to lend 50 per cent more than the most conservative
✔️4 – 5 times your gross income is what you might reasonably expect to be able to borrow
✔️some lender have been up to 6.5x gross income

When: Its done as soon as you apply for a loan. You can also get a broker to review your serviceability prior to application

💡 Step One💡
1️⃣ aggregating all sources of income (including rent on properties the borrower owns)
2️⃣subtracting living expenses, interest and principal payments on the new debt
3️⃣subtracting the servicing costs of any other debt the borrower may have

Result – A positive or negative ‘Net Income Surplus’. If negative, the loan is rejected. If positive, the bank will apply its ‘buffer’. The ‘buffer’ changes from bank to bank. Most lenders set a maximum debt service ratio of between 30 and 35 percent.

💡 Step Two ‘qualitative factors’💡
1️⃣ whether the borrower is an established customer or not
2️⃣ any past default history
3️⃣ industry of employment and
4️⃣ the location of the collateral

More detail for those that need it
1️⃣ PAYG wage will be treated at face value – lenders will reduce investment income and commissions by a buffer
2️⃣ When they factor the interest rate for monthly payments, they will use a buffer again. Its often reported at 7.5% but it’s not published. Lenders state its at least 2-3% over advertised

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