Serviceability Assessment

Serviceability Assessment is one of the must know terms before processing a loan. In simple words, it is a process to determine whether your income is well enough to pay the amount of loan including principal and interest both. To put it in another way, it refers to your capability for repayments. It is also known as debt service ratio or Loan to value ratio. After analysing the serviceability Assessment, banks or lenders will decide the size of loan they should approve, to be on the safe side of receiving the repayments on a timely basis. 

Now the question arises, “How does the serviceability assessment work?” Basically, your financial situations are analysed. For this, banks or lenders mainly observe two sides. 

• The first side is your income. Your earnings from all the sources are considered, be it salary, rental incomes, second job, investments or any other extra earnings. 
• The second side is your cost of living. It includes every expense you need to incur for living, like your rental expense, telephone bills, credit card bills, finance expense and every other expense incurred. 

Your serviceability is directly proportional to the loan amount, meaning the more serviceability, the bigger size loan is approved. Working on weekends, or overtime would be a bonus, creating a favourable situation for you. But alongside, your cost of living must be minimized. Government has set the standard cost of living to be approximately $3000, plus 500$ per kid for every month. This standard should be met, but above that, the more expense you have, the more you are on an adverse side. For example, if you own an expensive car, the finance and maintenance cost would be higher. Hence, this will affect the serviceability assessment in an adverse way.

APRA has recently increased the serviceability buffer rate, from 2.5% to 3%. This means, you should be able to repay the loans even if the interest rates increase upto 3% in the market. With this change, lenders will perform tougher tests regarding your serviceability assessment, to assure whether you can still afford the repayments on higher interest rates. we help you to calculate the serviceability assessment and find you the right lender, making your home loan hassle free.

If you want to know more, give us a call or leave a message. We would be happy to help you.