One formula, many answers

Put the same client into every lender's calculator and you will get a different answer from each one. Not slightly different: on an ordinary deal the top and bottom lender are often a few hundred thousand dollars apart. New brokers usually assume someone has made a mistake. Nobody has. Each lender is running the same sum and filling in the boxes its own way.

The one sum every lender runs

Strip away the forms and every serviceability calculator in Australia asks one question:

The maximum loan is simply the biggest loan that still leaves the surplus at zero. That's all “borrowing capacity” is. So when two lenders disagree, the disagreement is always in one of those five lines. The rest of this course takes them one at a time.

Why small differences become big ones

The new loan is tested at roughly 9% over 30 years. At that rate a loan of about $12,428 costs $100 a month. Turn that around and every $100 a month a lender finds or takes away moves the maximum loan by about $12,000. A lender that counts $3,000 a year more of your client's overtime, or $200 a month less of their living costs, isn't a rounding difference. It's a car.

See it on a real borrower

Here is one client, a hospital nurse who earns a solid base salary plus regular overtime, run through 27 lenders' calculators. Nothing about her changes between the bars. Only the lender does.

Most of that spread comes from two lines of the sum: how much of the overtime counts, and the rate the new loan is tested at. Switch on the “what if” above to see what happens when her overtime is not treated as essential-worker income: some lenders drop, others don't move at all. Module 2 explains why.