Serviceability

Serviceability is a lender's assessment of whether you can afford to repay a loan, based on your income, expenses and existing commitments.

The key mechanism: the test rate

Banks don't assess you at the actual interest rate. They apply a test rate — a stressed rate materially above the market rate — to check you could still service the loan if rates rose. This is why your borrowing capacity is usually well below what the advertised rate suggests.

What banks factor in

• Income, with rental income typically "shaded" — often only 70–80% counted, to allow for vacancy and costs
• Existing debt commitments, including credit card limits rather than balances
• Living expenses, benchmarked rather than taken at your word
• Dependants
• Existing portfolio commitments

Common misunderstanding

Serviceability, LVR and DTI are three separate hurdles. You must clear all three. Having a large deposit doesn't help if you fail serviceability, and strong income doesn't help if you fail LVR.

Banks differ substantially in test rates, rental shading and expense benchmarks. A decline at one lender genuinely doesn't mean a decline everywhere — this is a large part of what a mortgage adviser is for.

Reducing consumer debt often helps more than saving. Closing an unused credit card can lift capacity immediately, because the limit counts even if the balance is zero.

Related terms

Last reviewed: 1 August 2026 · General information only, not financial advice.

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