Mortgage Serviceability: What It Means & How to Improve Your Chances of Home Loan Approval
Getting approved for a home loan isn’t just about showing you can make repayments today—it’s about proving you can handle the loan long-term, even if interest rates rise. This is where mortgage serviceability comes in.
Lenders want to ensure borrowers can comfortably meet their financial commitments, which means they take a deep dive into your finances before approving your loan. Let’s break down what mortgage serviceability is, how it’s calculated, and how you can boost your chances of getting approved.
What Is Mortgage Serviceability?
Mortgage serviceability refers to your ability to meet home loan repayments without financial strain. Lenders have a legal obligation under the National Consumer Credit Protection Act (2009) to ensure they’re lending responsibly.
This safeguard protects both borrowers and lenders by preventing people from taking on debt they can’t afford—helping to avoid loan defaults, financial hardship, and unnecessary stress.
How Is Mortgage Serviceability Calculated?
1. Income vs. Expenses
Lenders assess your income and subtract all expenses, including:
- Current debt repayments (credit cards, personal loans, car finance)
- Living costs (groceries, rent, utilities)
- New mortgage repayment amount
2. Debt Service Ratio
This metric determines how much of your monthly income can go toward repaying your home loan.
3. Debt-to-Income Ratio
A lender will compare your total debt to your gross household income to gauge borrowing capacity.
4. Credit Card Limits
Even if your balance is $0, lenders factor in your credit card limit and assess if you could repay it in full within three years.
5. Serviceability Buffer
Since interest rates fluctuate, lenders apply a buffer to test if you’d still manage repayments if rates increase. In 2021, the Australian Prudential Regulation Authority (APRA) raised this buffer from 2.5% to 3%, tightening lending requirements.
🔗 Related Read: Fixed vs. Variable Home Loans
How to Improve Your Mortgage Serviceability
Boosting your serviceability improves your home loan approval chances and could help you access better mortgage deals. Here’s how:
✔️ Reduce Debt
- Pay off existing loans
- Lower your debt-to-income ratio
- Reduce credit card limits or cancel unused cards
✔️ Minimize Expenses
- Cut back on unnecessary spending
- Shop around for better deals on utilities & insurance
✔️ Increase Income
- Consider side income streams
- Negotiate a pay rise
- Explore higher-paying job opportunities
✔️ Improve Your Credit Score
Lenders will analyse your credit history, so maintaining a strong credit rating is crucial.
🔗 Read More: How to boost your borrowing capacity
How Much Can You Safely Borrow?
Buying a home is exciting—but taking on more debt than you can handle could become stressful, especially with recent RBA interest rate hikes.
At CBM Mortgages, we’ll help you crunch the numbers so you secure a loan that works for you—not against you.
📞 Speak to a Mortgage Expert Today
Want to know your borrowing power and explore home loan options tailored to your needs? Contact CBM Mortgages today!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
