What is a serviceability assessment?

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A serviceability assessment is the stage of the home loan process when the borrower is assessed on their ability to pay back their loan. The assessment takes place following the application for the loan - directly before the credit check - and looks at their income, expenses and other factors. 

Interestingly, there are steps that a borrower can take to improve their serviceability. We'll take a look at the assessment process in more detail.

What is serviceability?

In simple terms, 'serviceability' refers to the ability of someone to make repayments on a loan, according to the size of the loan and the person's income and expenses. 

Mortgage serviceability is calculated by taking a borrower’s income, subtracting expenses, household expenditure, and adding in the new loan repayment. 

Many lenders use the serviceability calculation as well as the debt service ratio - the proportion of the applicant’s income that can go toward paying off a loan - to assess the borrower’s capacity to pay off the loan. The maximum acceptable debt service ratio typically ranges between 70 and 90 per cent, though this varies between lenders.

What is a serviceability assessment?

A serviceability assessment is the process of considering all the factors that contribute to an individual’s financial situation, including the number of children or dependents. Typically, an individual’s income is balanced against their expenses, liabilities and other outgoings. 

Tip: Lenders may add a buffer to the assessment outcome in order to ensure the applicant will be able to keep up with repayments should interest rates rise.

What is classified as income?

For the purposes of a serviceability assessment, income might include:

  • Salary and employment income (including from second jobs)
  • Rental income
  • Overtime
  • Government and family support benefits
  • Commission


Tip: Check with your lender to see what percentage of different income they’ll use to calculate your income. While most lenders include 100% of employment income, most lenders will consider up to 80% of rental property income. This means if you receive $500 each week, only $400 will be factored into your serviceability assessment.

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You are protected by responsible lending laws. Because of these protections, the recommendations given to you about home loans are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations. This includes a duty to comply with a code of conduct and a requirement to be licensed.

All loan applications are subject to the lender completing responsible lending checks and considering the borrower’s individual circumstances. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

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