What is meant by “serviceability”, and how is it calculated?
Serviceability is the lender's assessment of whether you can comfortably service the loan repayments after accounting for your income, your living expenses and your existing liabilities. It is not a measure of what you can afford — it is a measure of what a particular lender is willing to lend, on its own rules. And that distinction matters, because serviceability is a policy question before it is an arithmetic one.
Every lender runs its own risk-assessment standards and its own criteria. One bank might approve a figure that a second bank declines, and a third might approve more again. Banks rarely publish their exact serviceability rules, but they tend to calculate the same way: add up income from all sources, subtract living expenses and debt commitments, then test the proposed repayment against what is left. The real question is which lender's policy treats your particular income and commitments most favourably — and online calculators, ours included, can only ever give a conservative indication. The accurate work is done by measuring your circumstances against each individual lender.
How serviceability is calculated
Most lenders express the assessment as a Net Service Ratio (NSR) — a standard measure of your after-tax ability to carry additional debt once existing debts and living expenses are allowed for. The mechanics are consistent across the market: after-tax income is totalled, including any rental income; the proposed loan repayment is deducted; then existing commitments come off — other mortgages, credit card liabilities (commonly assessed at 3%–4% of the card limit) and your assessed living expenses. The proposed loan and any existing mortgages are calculated at a test rate set higher than the actual rate, not the rate you would really pay.
Living expenses are usually estimated using the Household Expenditure Measure (HEM), a benchmark of typical household spending across categories like groceries, utilities, insurance, subscriptions and entertainment. Many lenders are now moving beyond HEM toward real-time bank-statement assessment, building a more personal picture of your actual spending rather than relying on a benchmark. Either way, the purpose is the same: to gauge whether your lifestyle leaves genuine room to service new debt.
How income and existing debt are treated
Income can come from several sources — salary and wages, rental property income, investments and dividends, Centrelink benefits, and self-employed income — but not every lender treats every source the same way:
- Rental income. Because investment properties can sit untenanted, most lenders shade gross rental income to 75%–80%, though the exact figure varies by lender.
- Income from shares. Given share-market volatility, many lenders accept around 80% of investment income, again varying by lender.
- Overtime. Some lenders disregard overtime; others accept it where you can show it is consistent. In fields like health and emergency services, where overtime is a normal part of pay, most lenders recognise it.
- Government benefits. Some lenders will not count government benefits at all.
- Secondary employment. Usually considered where the second job has been held continuously for at least a year.
The spread between lenders is wide. APRA has observed that the most generous Authorised Deposit-taking Institution (ADI) could be prepared to lend materially more than the most conservative — with even greater variation on investment lending. As a broad rule of thumb, most lenders land somewhere around 5x to 6.5x your gross income, but that is indicative only and shifts with your full profile.
Existing debt pulls in the other direction, and inactive credit cards are the classic trap. Lenders typically assess a card at 3%–4% of its limit, regardless of the balance: a $15,000 limit assessed at 3% is treated as a $450 monthly commitment, which can reduce borrowing capacity by roughly $60,000. Closing unused cards and clearing card debt is one of the simplest, fastest ways to lift how your file reads.
The interest-rate buffer, and affordability versus serviceability
Lenders do not assess you at today's rate. They add a buffer — generally around 2%–3%, commonly 2.5%, in line with APRA guidance — to test that you could still manage if rates rose. So a loan advertised at, say, 2.5% may be assessed as though the rate were at least 5%, sometimes higher. Before July 2019, many lenders applied a flat assessment floor near 7%, which sharply constrained borrowing capacity; the move to a buffer over the actual rate was a meaningful loosening.
This is why affordability and serviceability are not the same thing. Affordability is your view of what you can comfortably manage; serviceability is the lender's deliberately conservative view, stacked with the rate buffer and the HEM floor on living expenses. The figure a lender will let you borrow is usually lower than what you could genuinely afford — by design, to protect against the downside.
Because lenders differ so much, the productive step is to map your circumstances against the lenders whose serviceability policy actually fits them, rather than accepting the first number a single calculator returns. Book a strategy session and we will work through where you genuinely stand.
General information only — not personal financial product or credit advice. Lending is subject to each lender's policy, your full circumstances and responsible-lending assessment. AeFin is an Australian Credit Representative (CR 464548) of Finsure (ACL 384704).