Home loan assessment rate: The changes explained
Your borrowing capacity could be greater than you think.
Home loan assessment rates impact anyone looking to borrow money from a lender. In mid-2019, changes were made to the assessment rate process, and these changes have slowly been rolled out by lenders in the past few months. See what the changes are and how they could benefit you and your borrowing capacity.
What is a home loan assessment rate?
A home loan assessment rate — also known as a mortgage serviceability assessment — is how banks assess your borrowing capacity. Banks won’t assess you solely against their standard variable rate; they will assess you based on a higher “floor” rate and include a “serviceability” interest buffer rate. This was designed to safeguard banks from risk if the Reserve Bank issued a rate rise.
What are the most recent changes to the assessment rates?
To standardise and reinforce residential lending standards, the Australian Prudential Regulation Authority (APRA) announced changes to assessment rate. Where many lenders were once using a minimum interest rate of at least 7.25 per cent to assess home loan applications, APRA has announced assessment rates will drop to 7 per cent or below.
Lenders will be able to review and set their own minimum interest rate “floor” for use in serviceability assessments and use a revised serviceability interest rate buffer of at least 2.5 per cent over the loan's interest rate.
How do the mortgage loan assessment rate changes impact you?
At Joust, we think these changes to the home loan assessment rate are a step in the right direction and will benefit borrowers given the current market conditions. The changes should help increase your overall borrowing capacity; instead of calculating/assessing your ability to repay the mortgage at 7.25 per cent, the new assessment rates should have dropped below 7 per cent. Each lender has a different “floor” rate, so do your research to see which option works best for you.
Want more information about home loan assessment rates? See how Joust can help you secure the best rate here.