Calculating changes to your borrowing power
- Thread starter Redom
- Start date
That is too technical for me.
In OP I was talking about changes from your current position.
For example, if you currently rent out an IP for $30,000 per year, and increase it to $40,000 - a back of the envelope calculation to how it increases your borrowing power is roughly 55k.
As mentioned, very rough guidelines to think about it.
Agree 100%
There's lots of other quirks to consider when looking at servicing that are lender specific. For instance, AMP won't touch you when your portfolio grows above 10 properties.
Before you reach that point - they will take 100% of rental income when the LVR for the purchase is at 80% - but will also restrict the yield they take into account on properties that are highly CF+
Some lenders (Advantedge and Macquarie spring to mind) will take all other debt at actual repayments including the debt you hold with that lender (if held for a certain amount of time).
Cheers
Jamie
Definitely agree with you gents on this - hence the caveats all over OP and it only meant to used as a back of the envelope quick calculation.
The question about 'whats happens when I get a 10,000 pay rise' gets asked a lot - it's just some quick calculations to illustrate a rough guideline. There's too many quirks and too many methods to adjust (other than the 6-7 I outlined) that makes a precise figure difficult.
Cheers,
Redom
They don't, thats why rental income is assessed at the rate it is because they assume rental expenses exist.
Exactly the same as Redom's explanation on positive situations, about 5 posts up.
Great post it should be stickied to the top of the fourm 
Quick question: For each dollar you pay off a homeloan what is the average amount it will help your serviceability.
Quick question: For each dollar you pay off a homeloan what is the average amount it will help your serviceability.
great post it should be stickied to the top of the fourm
$1.
.
Damn I would have been happy with $1.01
Yes, every lender assums a min living expense. Around $16k for a single person with no kids.
To be pedantic, every lender these days has an Average living expense, as opposed to historically when most used the henderson poverty index (which was more like a minimum). Its made a diference to capacity for a lot of borrowers, but with the drop in interest rates and assessment rates it hasnt been noticed by many.
<18 are counted as child dependents, around $300-400 per month depending on the lender, there isn't a discrimination on age. In saying that, under certain ages FTB/child support and the like can be used in servicing, which can play a strong role in calculations of tight applications.
Lenders want to see that things like parenting payments will continue consistently for at least 5 years. Given that they often cease when kids turn 16 or 18, lenders have cut offs for accepting parenting payments at 11 or 13.
The best serviceability scenario is to be a couple with an income each and no kids. Dogs are fine.
The best serviceability scenario is to be a couple with an income each and no kids. Dogs are fine.
Great post it should be stickied to the top of the fourm
Thanks!
This ones difficult. If there's a difference between the interest rate your paying and the current market interest rate, there would be some marginal increase (perhaps $1.01!).
Cheers,
Redom
There's also a difference between paying down non deductible debt vs investment debt in calculations, so paying down 100k on your PPOR may find you with well in excess 100k extra serviceability for investment purposes.
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