Debt serviceability is the measure of whether a borrower can afford to repay a loan. Australian lenders assess serviceability using a stressed interest rate — currently the actual loan rate plus a 3% APRA buffer — to ensure borrowers can still meet repayments if rates rise. This guide explains exactly how lenders calculate serviceability and what you can do to improve your borrowing capacity.
How Lenders Calculate Serviceability
Lenders assess serviceability by measuring your monthly income against your monthly repayment commitments at the assessment rate (your loan rate + 3% APRA buffer). If a lender offers you 6.2% on a loan, they assess your repayments at 9.2%.
Serviceability Assessment Example
| Scenario | Detail |
|---|---|
| Loan amount | $600,000 |
| Actual rate | 6.2% |
| Assessment rate (APRA buffer) | 9.2% |
| Monthly repayment at assessment rate | $4,920/month |
| Net income required to qualify | Approx. $120,000/year |
What Reduces Your Serviceability?
- Existing mortgage repayments (PPOR and investment)
- Credit card limits (typically assessed at 3.8% of the limit per month)
- HECS/HELP debt repayments
- Car loan repayments
- Buy Now Pay Later liabilities
- Dependent children (each reduces assessed income by $2,000-$4,000/year per lender)
How to Improve Your Serviceability
- Cancel unused credit cards or reduce credit limits
- Pay down HECS/HELP if close to repayment threshold
- Restructure existing loans to interest-only to reduce assessed repayments
- Use rental income — most lenders shade rental income at 70-80% for serviceability
Frequently Asked Questions
What is the APRA serviceability buffer?
APRA (Australian Prudential Regulation Authority) requires lenders to assess mortgage repayments at the loan rate plus 3%. This buffer ensures borrowers can afford repayments if interest rates rise by 3%.
Do investment property rental returns help serviceability?
Yes. Most lenders count 70-80% of rental income toward your assessable income. Some lenders count 100% of rental income, which significantly improves borrowing capacity for investors with multiple properties.
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