Loan serviceability explained
Applying for a home loan isn’t just about your deposit or credit score, one of the most important things lenders consider is your loan serviceability. In simple terms, serviceability is your ability to repay the loan based on your income, expenses, and existing debts.
If you’re planning to buy a home, refinance, or invest in property, understanding how loan serviceability works can help you increase your borrowing power and avoid surprises during the application process.
What Is loan serviceability?
Loan serviceability refers to how easily you can meet your loan repayments based on your current financial situation. It’s the lender’s way of making sure you can afford the loan now and in the future, even if interest rates rise.
Lenders assess your income vs. expenses and determine if you can comfortably manage the proposed loan repayments. If you can, you're more likely to be approved.
What lenders look at when assessing serviceability
Income
Lenders will assess all sources of income, including:
PAYG income (salary/wages)
Self-employed income (based on tax returns or BAS statements)
Government payments (e.g. Family Tax Benefit, Parenting Payment)
Rental income (with a loading)
Child support (only some lenders accept it)
Bonuses, commissions, or overtime (usually averaged over 2 years)
💡 Tip: Make sure your income is stable and well-documented.
Living Expenses
Lenders use either:
Declared living expenses (from your fact find or application)
Benchmarked expenses using tools like HEM (Household Expenditure Measure)
They look at factors like:
Utilities, groceries, transport, and insurance
School fees or childcare costs
Subscriptions or lifestyle expenses
Expenses related to properties
Child maintenance
Existing Debts
Lenders will check your liabilities, including:
Credit cards (even unused limits count!)
Personal loans or car loans
HECS/HELP debt
Buy Now, Pay Later (e.g. Afterpay, Zip, Klarna)
Any co-signed or joint debts
Tax debts
Proposed Loan Repayments
Lenders calculate your repayments using a buffered interest rate—typically around 3% above the current rate. This is to ensure you could still afford the loan if rates rise.
For example:
If the rate offered is 6%, your repayments will be assessed as if you're paying 9%.
Number of Dependents
If you have children or financial dependents, lenders factor this into your living expenses. The more dependents, the higher your minimum expense assumption.
How can you improve your loan serviceability?
Reduce or eliminate unnecessary debts
Keep your credit card limits as low as possible
Track and manage your expenses
Provide full documentation for all income sources
Work with a broker to find lenders who suit your situation
Why work with a mortgage broker?
Not all lenders assess serviceability the same way. A broker can:
Match you with lenders who accept your income type (e.g. child support, trust income)
Structure your loan to maximise borrowing power
Help you prepare documentation to strengthen your application
Ready to see what you can borrow?
At More Loans, we specialise in helping clients, especially women and families, navigate the lending landscape with confidence. Whether you're buying your first home, refinancing after separation, or planning for the future, we’re here to help.
