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The assessment rate — why 9.5%?
Australian lenders don't assess your ability to repay at the current interest rate — they test at the actual rate plus a 3% buffer. With mortgage rates around 6.5%, the assessment rate is approximately 9.5%.
This buffer exists because interest rates change. If you're approved today at 6.5% and rates rise to 8%, your repayments increase significantly. The buffer ensures you can still afford the loan even if rates rise 3 percentage points from the date of approval.
HomeVerdict calculates your monthly repayment at both the market rate (what you'll actually pay initially) and the assessment rate (what the bank uses to decide if you qualify). If you can't meet the assessment rate threshold, most lenders will decline your application regardless of the current rate.
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Debt-to-income ratio — the 6× rule
Your debt-to-income (DTI) ratio is total loan amount divided by annual gross income. Most Australian lenders flag applications with a DTI above 6× for additional scrutiny — many will decline outright above this threshold.
Example: A $750,000 loan on a $120,000 household income has a DTI of 6.25× — already above the typical threshold. To bring this under 6×, you'd need either a larger deposit (smaller loan) or higher income.
DTI limits were introduced by APRA as a macroprudential tool to reduce systemic risk in the housing market. Individual lenders may apply different thresholds — some are stricter at 5×, others are more flexible at 7× for high-income borrowers. A mortgage broker can identify lenders with the most favourable DTI policies for your situation.
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HEM-inspired expense floor — what banks actually use
The Household Expenditure Measure (HEM) is a minimum living expense benchmark used by Australian banks. If your declared monthly expenses are below the HEM for your income band, the bank substitutes the HEM figure — they don't believe you can actually live on less.
This became a regulatory focus after ASIC found that many lenders were using borrower-declared expenses that were unrealistically low. Now lenders are required to justify any reliance on declared expenses that fall below HEM benchmarks.
HomeVerdict applies an HEM-inspired floor based on your income band. If you declared $2,000/month in expenses but the floor for your income is $3,000/month, the calculation uses $3,000. This gives a more realistic picture of what lenders will actually accept.
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Net surplus — what you have left
The net monthly surplus is your estimated take-home pay minus all monthly commitments: the tested repayment, living expenses (HEM floor), and existing debt payments. A positive surplus means the loan is theoretically serviceable. A negative surplus means it is not — regardless of what the other metrics show.
HomeVerdict uses an estimated after-tax income figure (based on simplified 2024–25 ATO tax brackets) rather than gross income — because you actually repay the loan from your after-tax pay, not your gross salary.
Lenders generally want to see a comfortable positive surplus — typically $500–$1,000/month minimum — to demonstrate that you have a financial buffer for unexpected expenses, rate rises, or income disruptions.
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LMI — the cost of a small deposit
Lenders Mortgage Insurance (LMI) is required when your deposit is below 20% of the property value (LVR above 80%). It protects the lender — not you — against loss if you default and the property sells for less than the outstanding loan.
LMI premiums scale sharply with LVR. At 85% LVR, expect 0.6–1.0% of the loan. At 90% LVR, 1.5–2.2%. At 95% LVR, 3.0–4.0%. On a $750,000 loan at 90% LVR, that's approximately $11,000–$16,500 added to your loan or paid upfront.
HomeVerdict shows an LMI range estimate (not a single figure) because premiums vary by lender and insurer. The two main LMI providers in Australia are Helia (formerly Genworth) and QBE, and their rate tables differ slightly.
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Transfer duty — the hidden upfront cost
Transfer duty (stamp duty) is a state government tax on property purchases. It's one of the largest upfront costs of buying property in Australia — often $20,000–$50,000 on a median-priced home — and it cannot be added to your mortgage.
HomeVerdict auto-detects your state from the postcode you provide and applies the correct 2024–25 rate table. First home buyer exemptions and concessions are applied automatically where eligible.
State rates vary significantly. For a $750,000 property, NSW duty is approximately $29,000, VIC is $40,000, and QLD is $24,500. First home buyers in NSW pay $0 on properties under $800,000. For a full comparison, use our stamp duty calculator.
Understanding the verdict labels and confidence meter
✅ Comfortable
Your scenario passes key serviceability criteria at the assessed rate. This doesn't guarantee loan approval — lenders consider many additional factors.
⚠️ Stretch
Your scenario is on the boundary of typical lender criteria. A broker may find options, but you'll face more scrutiny and fewer lender choices.
🔶 High Risk
Your scenario exceeds typical lender thresholds. Significant changes to deposit, income, or purchase price are likely needed.
🚫 Proceed with Caution
The numbers suggest this purchase is unlikely to pass standard lender serviceability checks without material changes to the inputs.
The confidence meter shows how far your risk score sits from the nearest verdict boundary. A score of 50% means your inputs are right on the edge between two verdicts — small changes to income, expenses, or deposit could shift the assessment either way. A score of 90%+ means the signal is strong and your verdict is unlikely to change with minor input variations.
Low confidence doesn't mean the tool is unreliable — it means your specific financial situation is genuinely at a borderline point. This is exactly when speaking to a mortgage broker is most valuable, as lender policies vary and a broker can identify which lender's criteria best suits your profile.
⚖️ Important: General information only
HomeVerdict is an educational tool that provides general information. It is not financial advice under the Corporations Act 2001 (Cth) and does not constitute a credit assessment under the National Consumer Credit Protection Act 2009 (Cth).
The calculations are estimates based on publicly available information about Australian lending practices. They do not account for your complete financial circumstances, credit history, employment type, or individual lender policies. Before making any property purchase decision, always consult a licensed mortgage broker (holding an Australian Credit Licence) or qualified financial adviser.