Loan Servicing Assessment Criteria

When Performing Calculations

Calculate all values (income and expenses) on a monthly basis.

Add a mortgage serviceability buffer as set by the Australian Prudential Regulation Authority. This was set as an additional 3% interest rate on top of the loan's interest rate.

On any line of credit (e.g. credit cards), apply a minimum repayment obligation of 2.5% to 3.0% of the approved credit limit. This is applied by banks even if there is a nil balance owning. For example, if a credit card has a limit of $8,500, the minimum monthly repayment at 3.0% will be $255 even if there is no balance owing on the credit card.

Criteria

Debt Service Ratio

The ratio between your monthly gross income and your total monthly debt expenses (existing debt liabilities plus your new debt liability). This ratio should be greater than 2:1 (i.e. monthly debt expenses should not exceed more than 50% of your monthly gross income).

Uncommitted Monthly Income

Your gross income less tax, living expenses, existing debt liabilities, your new debt liability, and a buffer applied by the bank. There should be a surplus, the higher the better.

Net Surplus Ratio

Your gross income less tax, living expenses, and existing debt liabilities all divided by your new debt liability. This ratio should be at least 1:1, but preferably above 1:1.05.

Assessed Genuine Savings

Some banks require assessed genuine savings of approximately 5% of the purchase price. Other do not require it.

Other Notes

• Existing debt liabilities include things like credit card debt, car loans, HECS debt, and other money owed/lines of credit.
• Typically, each dependent will reduce the amount able to be borrowed by $40,000 to $60,000.