If you’re looking to buy a property in Australia, it’s important that you understand how your serviceability is calculated. In this blog post, we’ll discuss what goes into determining your serviceability and how you can improve your chances of being approved for a mortgage. We’ll also take a look at some of the most common Australian terms related to mortgages and home buying. So whether you’re just starting out on the property ladder or you’re ready to take the next step, this guide will have everything you need to know!
What Is Serviceability?
To begin, let’s explore what serviceability means. In Australia, lenders assess your ability to afford a loan by calculating your lending capacity or “serviceability”. This is done by taking into account both your financial situation and the risk that you pose as a borrower. Serviceability looks at factors such as your income, expenses, credit rating, and any existing debts. The higher your serviceability score, the better chance you have of being approved for a loan.
Improving Serviceability
The next step in understanding how to improve your serviceability is knowing what goes into calculating it. Your income is one of the biggest components of determining your serviceability; try to keep it consistent over time and increase it if possible through promotions or bonuses. Reducing living expenses can also help improve serviceability, so consider cutting some costs where you can. Finally, make sure your credit score is up to date and in good standing since this will have a big impact on the rate of interest you’re offered.
Mortgage Terms:
Finally, let’s take a look at some common Australian mortgage terms that you should familiarize yourself with. The loan-to-value ratio (LVR) is the amount of money borrowed as a percentage of the property’s value; a lower LVR usually results in better rates and more options for financing. Offset accounts are savings accounts that reduce the amount of interest you pay on your loan by offsetting it against any income deposited into them. Lastly, lenders mortgage insurance (LMI) is insurance that lenders require if you’re borrowing more than 80 percent of the property’s value; it helps protect them in case you default on your loan.
We hope this guide has provided you with a better understanding of serviceability and how to improve your chances of being approved for a mortgage in Australia. Be sure to do some research and compare rates from different lenders before committing to any loan so that you can get the best deal possible. Good luck!
