{"id":33530,"date":"2023-06-23T15:40:50","date_gmt":"2023-06-23T05:40:50","guid":{"rendered":"https:\/\/www.dnister.com.au\/?p=33530"},"modified":"2023-06-23T16:39:42","modified_gmt":"2023-06-23T06:39:42","slug":"mortgage-serviceability-how-to-jump-through-the-hoops","status":"publish","type":"post","link":"https:\/\/www.dnister.com.au\/uk\/mortgage-serviceability-how-to-jump-through-the-hoops\/","title":{"rendered":"Mortgage Serviceability: How to jump through the hoops"},"content":{"rendered":"

Mortgage serviceability can feel like a frustrating hurdle to clear. But it\u2019s an important safeguard against borrowing too much, particularly in the current interest rate landscape.<\/p>\n

It\u2019s in the best interests of all parties involved if your mortgage is chugging along with regular repayments being made. Borrowing an amount you don\u2019t have a hope in hell of repaying can mean heartache for you, and can land your lender in hot water. Enter mortgage serviceability.<\/p>\n

Before approving your loan application your Mobile Lender will take a good look at your finances to see if you can meet repayments.<\/p>\n

We\u2019ll break down just what to expect with a mortgage serviceability test, and how you can improve your chances of gaining home loan approval.<\/p>\n

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<\/i><\/i><\/span>What is mortgage serviceability?<\/span><\/a><\/h4><\/div>
<\/p>\n

Our Lenders have a duty of care to ensure you\u2019re not provided with a loan that\u2019s beyond your means.<\/p>\n

In fact, the\u00a0National Consumer Credit Protection Act (2009)<\/a>\u00a0is in place to ensure lenders are following responsible lending practices (here\u2019s that hot water we were talking about earlier).<\/p>\n

While this protects Members from landing in financial dire straits, (which doesn\u2019t have anything to do with getting\u00a0money for nothin\u2019<\/a>, unfortunately) \u2026 it means that lenders are serious about checking serviceability, which can create some strict hoops for you to jump through.<\/p>\n

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<\/i><\/i><\/span>So how is serviceability calculated?<\/span><\/a><\/h4><\/div>
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Your serviceability is calculated by looking at your income and subtracting your expenses and debt repayments (including your new home loan repayment amount).<\/p>\n

We then need to work out what portion of your monthly income can go toward repayments. This is called your debt service ratio. It\u2019s also important to calculate your debt-to-income ratio, which is a measurement used to compare your total debt to your gross household income.\u00a0Your credit card limit will also be taken into account and you may need to prove that you have the means to pay off the limit within three years, even if the balance is $0.<\/p>\n

Finally, a serviceability buffer is applied to the current interest rate to see if you\u2019ll be able to continue repayments should interest rates rise.\u00a0 In 2021, the Australian Prudential Regulation Authority (APRA) raised the serviceability buffer from 2.5% to 3%. This buffer amount has been the topic of\u00a0much discussion<\/a>, with some arguing it\u2019s making it tough for people to pass the assessment and refinance to a lower-rate loan. But APRA is\u00a0remaining firm at 3%<\/a> given the current state of interest rates.<\/p>\n

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<\/i><\/i><\/span>How to increase your serviceability<\/span><\/a><\/h4><\/div>
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Here are our top tips for increasing your serviceability score and improving your chances of home loan approval:<\/p>\n