How lenders assess serviceability and how much you can borrow

What goes into the test

Lenders' exact methods are their own and are not published in one place. A 2020 Full Federal Court judgment (ASIC v Westpac) describes one lender's rule at the time as: discounted net monthly income, minus the proposed repayments, other outgoings such as other loans and credit cards, a living expenses benchmark and a buffer. Treat that as an example of the structure, not a description of any lender today.

In general, the pieces are:

• Income. Lenders ask for evidence, and some count only part of certain income types. Ask your lender how it treats bonuses, overtime, rental income and self-employed income.
• Living expenses. Either what you declare, or a benchmark such as HEM, or both. See the HEM benchmark explained.
• Existing debts. Other loans, buy-now-pay-later and credit cards. Ask how the lender counts a card: by balance or by limit. This varies, and a limit you do not use may still count against you.
• Dependants. More people usually means higher living costs in the assessment. Ask how your lender counts them.
• The new loan. Repayments are tested at a higher rate, covered next.

I could not find an official page that sets out each of these treatments, so check them with your lender or broker.

The rate buffer

APRA expects banks to assess whether a new borrower can meet repayments at a rate at least 3.0 percentage points above the loan product rate. APRA raised this from 2.5 on 6 October 2021, and on 28 May 2026 said the buffer will remain at 3 percentage points. Details are in the APRA serviceability buffer. Moneysmart also suggests working out what your costs would be if interest rates went up by 3%.

Worked example: why the buffer matters

These are RateSonar's arithmetic on advertised rates, not any lender's assessment. As at 2 Nov 2026, the median advertised standard owner-occupier variable rate in the data is 6.74%. On a $600,000 loan over 30 years:

So at the median rate plus 3 points, the monthly repayment is $5,151, which is $1,263 a month more than at the median. A lender must be satisfied that your income covers the higher figure plus your other costs, even though you will pay the lower rate. If a lender's assessment rate is higher than the buffer rate, the gap is bigger. You are not charged the higher rate.

Why your answer differs from lender to lender

• Different treatment of income and rental income.
• Different expense benchmarks and different views of declared costs.
• Different treatment of credit card limits and other debts.
• APRA's guidance allows exceptions in some cases. Its December 2023 update says banks can apply exceptions to the buffer when appropriate, including for borrowers who are seeking to refinance, within their risk appetite.

Lenders also have a legal duty. ASIC's RG 209 sets out its views on what the responsible lending obligations require: lenders must make inquiries and must not give you a loan that is unsuitable. See mortgage pre-approval for a lender's pre-check.

Ways to improve your position

• Close or reduce unused credit card limits before you apply, if your lender counts limits.
• Pay down or clear small debts.
• Know your actual spending, so declared expenses are accurate.
• Compare lenders on live rates: a lower rate lowers the repayment in the test as well.
• Ask a broker how different lenders treat your income. See questions to ask a mortgage broker.

Moneysmart's mortgage calculator (updated 27 October 2026) says it does not guarantee you will be eligible, and that you must meet your lender's lending criteria. It also does not consider your ability to make the repayments shown.