Loan Serviceability Calculator

How mortgage serviceability works in Australia

Australian banks assess serviceability — your ability to repay the loan — using strict lending criteria. They typically use a 3% interest rate buffer when assessing your ability to repay, regardless of the actual rate.

Key serviceability metrics

• Debt-to-income ratio: Banks typically limit total debt repayments to 40–50% of gross income.
• Living expense allowances: Banks apply minimum living expense guidelines ($2,600–$3,500/month for individuals) to ensure you can meet other obligations.
• Interest rate buffer: Most banks assume a 3% buffer above the current rate for repayment capacity.
• Loan-to-value (LVR): Typically limited to 80–90% depending on loan type and circumstances.

What can affect your borrowing capacity?

• Income stability and type (employment vs. self-employed)
• Credit history and existing debts
• Deposit size and LVR
• Interest rate environment
• Employment in key sectors (some lenders restrict mining, defence, etc.)
• Age of applicants

APRA Serviceability Buffer — Why 3%?

In October 2021, APRA directed Australian lenders to assess loan serviceability at the loan rate plus a 3% buffer. This replaced the previous 2.5% buffer to manage risk as rates were expected to rise. So if your actual rate is 6.5%, the bank assesses your ability to repay at 9.5%. This buffer is the biggest constraint on borrowing capacity for most Australians.

HEM — Household Expenditure Measure

When you apply for a loan, Australian banks apply the Household Expenditure Measure (HEM) — a minimum living expense benchmark published quarterly by the Melbourne Institute. If your declared expenses are lower than HEM, the bank uses HEM instead. This prevents borrowers from understating expenses to borrow more. HEM varies by household size and income level.

Borrowing Capacity by Income (Approximate)

Estimates assume no existing debts, standard HEM expenses, and a 30-year P&I loan at ~6.5% (assessed at ~9.5% with buffer). Actual lender limits will vary.

Next steps

Use this estimate to understand your rough borrowing capacity, then get pre-approved by a lender for an exact amount. Mortgage brokers can shop multiple lenders and often get better rates.