What is home loan serviceability and how do you increase it?

Serviceability affects many things, including your borrowing power, loan application approval, and final loan amount.
Dawn Teh
Written by
Dawn Teh
Ava Crawford
Reviewed by
Ava Crawford
Last updated
August 1, 2023
0 minute read
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What is home loan serviceability? (And how to increase yours)

In home loan terms, “serviceability” is your capability to afford loan repayments based on your financial situation.

This will affect many things, including your borrowing power, loan application approval, and final loan amount.

Before going to your lender, learn what serviceability is and how it can help when applying for a home loan.

What is home loan serviceability?

When you apply for a home loan in Australia, your lender has various ways to determine how much money you can realistically borrow from them while still making repayments comfortably.

One measure they use is called "serviceability" — the amount of monthly repayments you can afford to pay each month on your home loan.

How is home loan serviceability calculated?

Lenders usually take a look at your income, expenses, debt, credit history, and other factors to get a complete picture of your financial situation.

But bear in mind that different lenders and financial institutions have various serviceability calculations, and they won't reveal their exact method of deriving the final figure.  

So, don't be surprised if one lender determines that you'll be able to borrow more from them than the next.

Get an idea of how much you can borrow with our borrowing power calculator.

Your serviceability will also help them to calculate your debt service ratio (DSR) — a percentage that tells you how much of your monthly income will go towards paying off your home loan repayments.  

As a side note, banks usually try to give a conservative figure when it comes to determining your serviceability. This is because, in addition to your personal circumstances, they have to factor in fluctuations in loan interest rates.

The Australian Prudential Regulation Authority (APRA) has rules in place to ensure that lenders do not approve loans that borrowers won't be able to afford.

What are the factors that affect home loan serviceability?

The big factors that influence your serviceability include:

  1. Income
  2. Expenses
  3. Debts


Your lender will take a look at all of your income sources. This includes:

  • Salary or earnings from self-employment
  • Rental income from investment property
  • Other sources of money you might have coming in, like bonuses or other investments

Note that income isn't always as straightforward to calculate. Income from inconsistent sources (like gig work or rental property earnings) might not be given full weight as they may fluctuate over a period of time.

The lender will also take into account any long period of leave from employment- paid or unpaid - such as parental leave.


Your lender will also subtract your monthly expenses from your income. This includes things like:

  • Daily living expenses (e.g. groceries, transportation costs, and entertainment)
  • Number of dependents you have

Debt liabilities

Additionally, your lender will look at any debt liabilities you may have, like credit card debts or car loans.

Finally, they'll add in the monthly mortgage repayment that you'll be responsible for. With all of that information, the bank can determine how much you can comfortably afford to borrow.

How can I improve my home loan serviceability?

Here are a few tips on how to increase your serviceability and borrowing capacity:

1. Increase your total income

  • Increase employment income via a raise or additional job.
  • Consider investing in other assets that can give you another source of income.

2. Minimise your expenses

  • Cut down on non-essential expenses in entertainment and subscription services.
  • Set a budget for fixed and variable expenses so you can demonstrate financial discipline.

3. Lower your existing debts

  • Reduce your credit card limits and personal loans, and aim for fewer lines of credit.
  • Explore methods of increasing your credit score, such as paying bills on time and maintaining a low balance on any existing accounts.

The lowdown: Increase your serviceability and borrowing capacity

Your serviceability is about how well you can meet monthly home loan repayment.

It's an important metric calculated by your lender, which determines how much they'll be able to lend you. It can also help you to make informed financial decisions when it comes to purchasing a home.

The good news is that you have some control over your serviceability. In the most basic terms, you want to increase income and reduce expenses along with debt to reach your best level of serviceability.

This will help you to be in the best position to afford your dream home!


What is the best home loan option?

No one home loan option will suit every person.

The main notes of importance are that you do your research, read the product disclosure statement (PDS) thoroughly, and consult with a financial advisor or mortgage broker if required.

If you are a first-time home buyer, a single parent, or buying in a regional area, it may be worth looking into government schemes to allow easier access to the property.

Are there any options for home loans with no deposit?

If you have no deposit, you may be more limited in home loan options.

Guarantor loans allow a loved one or family member to use the equity in their property for you to borrow against. Guarantor loans allow you to borrow a greater amount of money — up to 110% of the value of the property. This can be helpful when it comes to upfront costs like stamp duty.

Another option for those with generous friends and family can come in the form of a gifted deposit. This can either stand alone as your house deposit or can top up any deposit that you have already.

If you do receive a gifted deposit, be prepared to demonstrate genuine savings and a strong credit history as a way of proving you will be able to make your monthly repayments. You may also need to prove that the money was gifted in the application process (to prevent people from using money from personal loans or credit cards are their deposits)!

Do no or low deposit home loans usually incur higher interest rates?

In general, you’ll get low interest rates on low LVR loans. But, it really depends on the type of home loan you select, and the kinds of additional services you require (such asn offset, redraw, fixed or variable rate). But there are definitely instances where you could get competitive interest rates (like with guarantor home loans which you can learn more about here).

This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.

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