Serviceability refers to the capability of an applicant to meet their loan repayments. When calculating serviceability, the Loan Specialist will look at the applicant’s monthly income against their monthly expenses and liabilities. Their monthly income would include their salary as well as any bonuses, overtime and rental income they may accrue. Liabilities would include ongoing financial commitments such as HECS debt, credit card debt and any other debts they may have. Any money left demonstrates their capacity to make repayments.
Calculating serviceability is one of the most important processes in a home loan application. It is mandatory for all financial institutions to conduct serviceability checks in order to uphold the lending practices set by the Australian Prudential Regulation Authority. It is also important for the lender in terms of managing risk and it can protect the borrower from facing financial hardship in the future.
A tip to increase your serviceability is to cancel unused credit cards or reduce their limits.