Basic serviceability calculator

does anyone know of a good basic serviceability calculator?
Or any rules of thumb?
Interested to see if there's one that you can input the basics, but something that is not as over generous as the online bank ones?

 

Years ago I used to use the formula:

A = b x 30%

Where A is annual loan repayments and b is total annual income.

To calculate borrowing capacity I used the formula:

Z = A x 30 (years) /2

Where Z is borrowing capacity, A is annual repayment amount.

 

Figuring out serviceability isn't something you can really do yourself.

The online calculators aren't particularly useful for a number of reasons. Get help from a professional.

 

Hi @Otie

Are the calculations for an IP or a PPOR? If it's for a ppor and you have no other debt then the basic online calcs might give you an idea. If it's for an IP and you have existing mortgage debt then it's going to be very difficult accurately working out serviceability on your own.

Cheers

Jamie

 

It also gets tricky if you have any variance in pay, overtime, shift work, salary sacrifice etc...

As Pete said, don't base any decisions on it without confirming the result first.

 

Yes, definitely need to speak to one of you, as we currently have a PPOR, IP and want to go for the second IP. We are self employed (but have been for over 10 years so not really an issue, but add backs will be needed I think for car depreciation, IP depreciation etc. I had a go at Peters ING spreadsheet, and realised that I need to speak to someone!

 

For self employed you definitely do

 

Self employed gets fairly tricky. Lenders aren't consistent about that they will or won't accept as income and add-backs. There's so many ways to structure a business which leads to many more variations.

The simplest form of serviceability is to just use your taxable income on the assessment notice, but it's rarely that simple and even that can have a lot more too it. It can be a mountain of paperwork just to figure out the first 'income' figure on the spreadsheet should be.

 

Yes, as if we use the taxable income, it comes in quite a bit lower as they had the 20k instant depreciation write off this year etc

 

Any income/expense non-recurring usually is to be removed with mitigates.
i.e. Capital gains, dividends, gross interest income, etc

 

Hi, digging up an old thread. I'm trying to see how maximum loan volumes have changed from say 2014 to today.

Does anyone have a copy of two serviceability calculators from the same bank - one from some time in 2014 and one from 2017?

Cheers,
Rob

 

Unlikely, but many lenders are still using the same calculator, it's just the inputs have changed.

So where it was the actual repayments for other debt, it's now the p&i repayment at 7.5%. Where the sensitised rate was the current variable plus 2% it's now 7.5%. For some lenders if the proposed loan is io it used to qualified as a 30yr mortgage. Now it's the remaining term, 20 or 25 years. Where the living expenses was based on the banks 'minimum living expenses' now it's based on HEM or the clients actually stated living expenses if they are higher.

Same calculator different inputs.

 

Thanks tobe. Yes, that makes sense. I suppose I'm keen to see you those different inputs would change my max borrowing capacity based on my personal circumstances. So I'm trying to find calculators from the same bank with 2014 inputs and current inputs

 

Just in case you go back in time to 2014 to borrow money?

The changes between each bank is different - some have made new calculators with significant changes, others with marginal changes and some with almost no changes. Depending on your situation the impact could be marginal, to extremely signifcant - but the general trend is down.

Lenders have rules that brokers do not hand out the copy of the calculators used at the back end, so you probably won't find too many brokers jumping out to help.

 

Re basic calculator details - for the majority of mainstreams:

Income:

• Salary/wages, taxed at tax rate.
• Variable income like commissions/bonuses/overtime at 80% of actual income earned.
• Rental income at 80% (some at 75%).
• Negative gearing add-backs at actual interest rate paid (some of the more generous still do it at assessment rate, but that will change in time after latest guidance released in March 2017).

Expenses:

• Debts at 7-7.5% P&I. Some do this differently, but as a general conservative guide, this is what most do.
• Living expenses at higher of HEM or declaration.
• Personal debts @ actual repayments (again, guidance says this should change).
• CC at 3% of limit, expensed monthly.

You could put all your info in together with these general metrics. If you pass, your likely to have a good shot of financing with mainstreams and most lenders.

If not, than its about how far do you fall by and what are the main hurdles. For example, if you have a fair bit of debt and the expense number here is hurting, than you could go to lenders that treat debts a little more favourable. If the majority of your income is commissions, than you could go to another lender that treats this at 100%.

The above, of course, are generalised. Different lenders have different variations to the base case above.

There's no doubt that calculators have become increasingly uniform.

Getting a microscope out and looking at APRA guidance re serviceability, one obvious change is the level of prescriptiveness that APRA are now getting too. it does leave ADI lenders with far less wiggle room and scope to be different with their calculators than before.

 

Hey Redom - I was wondering if you have any updates to this figures as of 2022?

 

The only real update is assessment of existing and new home loans is now done at 3% higher than the actual rate, with a minimum figure of 5.25%. Keep in mind the repayment is calculated on P&I repayments over the P&I term.

Many lenders are also including the holding costs investment properties in addition to only using 80% of rental income.

HEM tables (living expenses) have been updated frequently. Individual lenders seem to have their own versions of this, the figures are not disclosed. To this day living exepnses is the most painful part of submitting an application from my perspective. Best advice I can give is try to do an honest budget and use that figure in your caculations.

There's also a lot of individual quirks in lenders calculators that can make coming up with a specific figure very tricky. These days borrowing power calculations are as much art as science.

 

Thanks Peter. That's very helpful.

As a young investor (25 and just started) one of the biggest challenges I see is working out what my borrowing capacity is with an ever changing income and ever changing "rules" from banks. Out of interest is there any "official" resources you access as a broker to learn the difference between banks? Or is it just accumulated industry knowledge?

 

Brokers get emails from lenders every day to keep us up to date on this stuff. We also attend regular industry events and have to log at least 25 hours of ongoing education a year (I'm yet to log less than 55 hours a year over the past 18 years).

Then experience comes into it. This is where we learn over time how to structure things across multiple applications to get the best overall result. This might mean understanding how multiple policies with a lender interact with each other, or it might mean using mutiple lenders in the right way to get the desired outcome. Sometimes it's just social engineering with a bank assessor.

Mortgage broking is not a trivial job, there's a lot more to it than plugging in some numbers and filling in a few forms.

 

Not worth DIY. You will be wrong, and will probably miss out on more appropriate lenders. Find a good broker and make sure you have your documents ready.