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
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.