Loan database software used by many finance brokers can usually calculate the serviceability for clients with a given loan size very closely. the same software databases can often give an indication of the maximum loan size each lender may consider based on the applicants income and existing liabilities.
Each lender has their own loan calculator which a finance broker must also use to check that the serviceability, or ability to repay a loan is evident using the actual lenders specific criteria. Generally serviceability is calculated as follows. Applicants income from all allowable sources, minus applicants living expenses and then minus any existing liabilities such as other loans, debts etc.
The above calculation will hopefully leave a surplus in income which could be used to repay the new loan that is required. Next the repayments of this new loan plus a buffer to cover for interest rises or cost of living increases is then calculated and taken away from the above surplus if there was a surplus to begin with. If there is still a surplus after the new repayments and the buffer amount have been taken away then the proposed loan is said to be serviceable.
If the proposed loan is not serviceable the options may be to either reduce the loan size, include other income if any or in some cases another lender may allow a certain income that another does not which could result in a positive result for a serviceability test. Wherever any changes occur such as loan size, other liabilities, income variations, interest rate changes etc a finance broker will be required to recalculate an applicants serviceability to ensure there is not a negative result.