Serviceability
Finance & Loans
A lender's assessment of whether you can afford to repay a loan based on your income, expenses, and existing debts.
Full Explanation
Lenders calculate serviceability by comparing your total income against your living expenses, existing loan repayments, and the proposed new loan repayment. Most Australian lenders apply a serviceability buffer of 2 to 3 percentage points above the actual interest rate to ensure you can handle rate rises. Rental income from investment properties is typically discounted to 80% when included in your income assessment.
Example
Your loan is at 6% but the lender assesses repayments at 9% (with a 3% buffer) to confirm you can still afford the loan if rates rise.
Frequently Asked Questions
How can I improve my serviceability?
Reduce existing debts and credit card limits, increase your income, lower your declared living expenses, and consider a longer loan term. Paying off personal loans and closing unused credit cards can make a significant difference.
Why was my loan declined if I can afford the repayments?
Lenders apply a buffer rate (typically 3%) above the current rate. They also shade rental income to 80% and factor in all existing debts, including credit card limits even if unused. Your actual affordability and the lender's assessment can differ substantially.