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Banks are required to assess their customers’ ability to repay their home loan based on an interest rate that is higher than their actual rate. This is to protect the customers’ ability to repay their home loan in the event of interest rate rises.
The assessment rate applied was based on the higher of:
For example, a customer applied for a home loan with an interest rate of 4% p.a. We used a 7.25% p.a. interest rate to assess the ability to repay their home loan in case interest rates increased.
On 5 July 2019, the assessment rate was reduced and the serviceability buffer was increased. This is how the assessment rates have changed; the highest rate will still be used:
In the example of the customer who applied for a home loan with a 4% p.a. interest rate, serviceability would now be determined at a rate of 6.5% p.a. rather than 7.25% p.a.
These changes became effective 22 July 2019.
If you’ve applied for a home loan conditional pre-approval with us, you could now be re-assessed using the new assessment rates – either at the 5.75% p.a. floor rate, or at 2.5% p.a. more than the actual interest rate you have chosen, whichever is higher.
Get in touch with your lender if you’d like to re-assess your conditional pre-approval or discuss topping up your existing home loan.
Subject to credit approval. Fees, charges, terms and conditions apply. As this advice has been prepared without considering your objectives, financial situation or needs, you should consider its appropriateness to your circumstances before acting on the advice. You should also read our Financial Services Guide.