What is serviceability?
Serviceability is a lender's evaluation of whether a borrower can afford to repay a loan based on their income, living expenses, and other financial obligations.
When you apply for a mortgage, lenders don't just look at how much you earn. They assess your serviceability, which is their evaluation of your ability to actually repay the loan. This calculation takes into account your gross income, your regular living expenses, other debt repayments, and any other financial commitments you have.
The assessment typically covers:
- the team from employment, investments, or business
- Fixed and variable living costs like utilities, groceries, and insurance
- Existing loan repayments on credit cards, car loans, or personal debt
- Rent or board payments if applicable
- Child support or other legal obligations
Lenders use serviceability tests to determine how much you can borrow and ensure you'll keep up with repayments even if interest rates rise or your circumstances change. This protects both you and the lender. If your serviceability is weak, you may not qualify for the full loan amount you've requested, or you may not qualify at all.
A mortgage broker can help you understand your serviceability position and work with lenders who align with your financial profile, especially if your situation is complex or non-standard.