Servicing policy refers to a set of criteria lender uses to determine how much you can borrow. The criteria is based on lender’s risk appetite and recommendations by regulatory bodies like APRA and ASIC. Different lenders will have different servicing policy which can affect how much you can borrow. Here are a couple of factors which can impact on your borrowing capacity
- Assessment Rate: This is an interest rate used when working out your affordability. The assessment rate can be anywhere between 7.25% – 8% instead of actual interest rate you pay.
- Living Expense: Most lenders uses Household Expenditure Measure (HEM) as a guideline when working out borrower’s monthly minimum living expenses
- Existing Home Loan Repayment: Lenders may load your actual repayment up by another 25 -30% as a buffer
It is important to speak to a mortgage specialist because they will be able to see if your financial position fits into the lender’s policy.