1. What is Home Loan Serviceability?

Home loan serviceability refers to a borrower's ability to make repayments on a home loan. Lenders assess serviceability to determine the maximum loan amount a borrower can afford while maintaining financial stability.

2. How Does the Calculator Work?

The calculator uses the serviceability formula:

Where:

• \( Monthly\ Net\ Income \) — Your take-home pay after taxes
• \( Debt\-to\-Income\ Ratio \) — Percentage of income allocated to debt repayment (typically 30%)
• \( Interest\ Rate \) — Current home loan interest rate
• \( Buffer\ Rate \) — Additional interest rate buffer (typically 2.5-3%)

Explanation: The calculation ensures you can afford repayments even if interest rates rise by the buffer amount.

3. Importance of Serviceability Calculation

Details: Proper serviceability assessment prevents overborrowing, reduces default risk, and ensures long-term financial stability when purchasing property.

4. Using the Calculator

Tips: Enter your actual monthly net income, use standard DTI ratio of 30%, current interest rates, and the standard 2.5% buffer rate for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: Why is a buffer rate used?
A: The buffer rate (typically 2.5-3%) ensures you can still afford repayments if interest rates increase in the future.

Q2: What is a good debt-to-income ratio?
A: Most lenders prefer a DTI ratio of 30% or less, meaning no more than 30% of your income goes toward debt repayments.

Q3: Does this calculation include other debts?
A: This calculation focuses on home loan capacity. For a comprehensive assessment, include all existing debts in your DTI ratio.

Q4: How often should I reassess my borrowing capacity?
A: Reassess whenever your income changes significantly, interest rates change, or before applying for a new loan.

Q5: Are there other factors lenders consider?
A: Yes, lenders also consider credit history, employment stability, existing assets, and living expenses in their assessment.