User Guide
PreApproveMyLoan.com.au Servicing Calculators
Your obligations
All Income and Expenses/Liabilities (for each applicant) must be included in the calculator. The National Consumer Credit Protection Act places responsible lending obligations on those parties involved in the process of providing a customer with assistance to obtain Credit and providing Credit to a customer. It is recommended you refer to the National Consumer Credit Protection Act to confirm your obligations.
Tips for Income Fields
Base Income
Servicing of the proposed loan should be calculated on base Incomes only. Any reliance on additional income sources (overtime/commissions/bonuses/allowances) must be aligned to the credit providers Credit Policy and clearly detailed in the application.
Overtime/Commissions/Bonuses/Allowances
The consistency and duration of these types of income is an important factor that determines whether it can be included in the ‘servicing’ income. Your Mortgage Broker will refer to the appropriate lender Credit Policy for details of the acceptable duration of these types of incomes prior to including as ‘servicing’ income.
Self Employed Income
A Self Employed borrower must have consistent income over the last 2 years (as a minimum). Where the income is not consistent, an explanation must be provided as to why your Mortgage Broker should accept the application. Your specific icome situation will be reviewed against the appropriate lenders Credit Policy for details of how to calculate Self Employed income for servicing purposes.
Note: For all Self-Employed borrowers a ‘Ready Reckoner’ be completed and attached to the application.
Rental Income
Rental income calculations will apply 80% of the gross rental income toward debt repayment capacity and living expenses.
Tips for Expenses/Liabilities fields
Existing Liabilities
Existing Loans (including Investment Loans) should be included in the servicing calculation based on the existing repayment (i.e. actual % rate). Where the current loan repayments are Interest Only it may be prudent to calculate a repayment based on P&I over the remaining term to ensure the customers have ongoing capacity to meet future P&I repayments. A Line of Credit should be assessed on the limit and calculated as P&I over the remaining term. For both Line of Credit and Interest Only loans, it is important to consider the customer’s ability to repay the debt should it need to be amortised.
Credit Cards
Credit Cards are liabilities and must be included in the Servicing calculation. In the event the customer’s servicing position is marginal and financial difficulty may be apparent, reducing the Credit Card limit or cancellation of the facility may be an option. Where a reduction or cancellation is undertaken, you should request written confirmation from the customer’s banker.
Conduct of the customer’s Credit Card facilities is imperative to identify any conduct issues or possible financial stress that may affect servicing of the proposed loan. Examples of poor conduct issues or financial stress may be:
- Evidence of limit excesses
- Evidence of Missed and late repayments
- Limited available Credit within Credit Card facility on each statement
Continual evidence (month by month) the balance of Credit Card debt only reduces by minimum payment.
Servicing Rate (Assessment Rate)
The Assessment Rate (or Interest Rate used to calculate the proposed loan repayments for the loan amount sought) is applied to try to ensure the customers have the capacity to cover the possibility of future marginal Interest Rate rises. In the event the customer wants greater comfort in their capacity to meet increased loan repayments due to interest rate rises, as their Broker you may consider discussing the possibility of Fixed Interest Rate products or seeking a lower loan amount.
Our Loan Servicing Calculator
Allocation of Living Expenses
Based on the number of dependent’s and relationship status of the customers, a living expense will be calculated (using the Henderson Poverty Index) which is considered a minimal living expense.
Your level of enquiry should investigate the applicants true living expenses and whether a higher figure needs to be inserted into the calculator to more accurately reflect your proposed lifestyle (post loan). You must provide complete and up to date details of the your expenses to your Mortgage Broker.
Surplus/Deficit after all Income and Expenses considered
It is important to understand that a negative result after all Income and Expenses are considered is not an acceptable servicing position to a Lender. Equally a surplus does not guarantee an approval. The surplus must be appropriate for your lifestyle and provide some comfort to service unaccounted for expenses. You must be able to service the loan without significant hardship.
Assessing Capacity to Repay
As outlined in the National Consumer Credit Protection Act, the loan sought must meet the customer’s requirements and objectives and must not place the customer in financial difficulty.
Therefore there must be sufficient surplus available to the customers once all income and expenses have been considered so as not to cause substantial financial hardship. For example, a negative income position is not considered appropriate as the position would indicate the customer(s) is unable to afford the loan amount sought when considering all income and expenses (refer National Consumer Credit Protection Act and RG 209).
Data Field Guide
Input fields
Yellow/Beige fields are input fields and Gray fields are calculated fields.
Loan details
Loan Term The loan term must be reflective of the customer’s financial capacity, the purpose of the loan (e.g. property or motor vehicle) and the future needs (e.g. retirement)
Product Type
A selection of appropriate loan products should be discussed with your dedicated Mortgage Broker.
Investment ‘tick box’
Where the loan is for Investment Purposes you should click the Investment box. This will automatically deduct the interest from Tax in the income section below. By not selecting this option, you may not be reflecting the customer’s true servicing capacity.
Loan Type
Select either Full Doc or Low Doc.
Loan Amount
Insert the total NEW amount you are seeking to borrow. (Note: Where you are applying for a loan with another Lender in conjunction with this application, the ‘Other Lender’ commitment MUST be included in the ‘Commitments’ field).
Security Value
Insert your estimated value of the property being purchased or refinanced.
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Living Expenses
Applicant 1
Select whether the customer is Employed or Unemployed. Applicant 1 should be the highest income earner. Select whether the customer is Married/De Facto/Other. Other includes Single Borrowers. Select the number of dependents.
Applicant 2
The spouse of Applicant 1 should be added as Applicant 2 (if applicable) and complete as per Applicant 1. In addition, if Applicant 2 is spouse of Applicant, select ‘of Applicant 1’. This will adjust the Living Expenses to that of a couple (as opposed to a single).
Applicant 3 & 4
Complete as per Applicant 2.
Living Expenses Declared
As part of your Fact Find (or customer enquiries) you (Broker) would have ascertained a figure that reflects the customer’s general living expenses (not including lender commitments/Credit Cards) post loan. This figure is to be inserted into the Living Expenses Declared field. If nothing is added into this field, the Living Expenses will be calculated according to the Applicant information you have input.
Living Expenses Assigned
This is an automatically generated field. The higher figure of the Living Expenses calculation from the ‘Applicant information’ OR the Living Expenses Declared field will populate this field.
Applicant 1 PAYG
Insert PAYG Income as per Guidance Note. (i.e. PAYG and/or personal income derived via Company/Trust) The calculator will apply the current Tax Rates to this amount.
Applicant 1 S/Emp
Insert Income derived through Sole Trader or Partnership Ready Reckoner (as per 1st $value OUTPUT field).
Applicant 1
Rental Income Insert ‘Annual’ Rental amount (new or existing). There is no need to shade the Rental amount as the calculations will attend to this.
Applicant 1 Voluntary Super
Insert the any amount ‘over and above’ the minimum Superannuation contribution required for the applicant type (e.g. PAYG minimum is currently 9%) which is intended to be directed toward debt repayment (in lieu of Voluntary Superannuation).
Note: Evidence must be provided to support the history of customer payments over and above the minimum contribution.
For use of this income, the assumption is the customer will cease paying voluntary contributions to their Super fund post settlement of the loan to meet the proposed commitment level.
Less Interest on Investment loans
Place cursor above red triangle for details of what Interest figure to use.
Balance of other Investment loans
Again, read guidance notes in red triangle. Balance of ‘other’ loans is to be input into this field, NOT the proposed Lender loan. The earlier selection in the ‘Loan Details’ section of the calculator will allow for the interest on the proposed Investment loan.
Servicing Calculator
Applicants 2, 3 & 4 (if applicable).
Complete fields as per Applicant 1 for all other applicants (if applicable).
Self Employed – Addbacks (this is a Non Taxed field)
It is important you are familiar with the lenders Credit Policy with reference to addbacks. You should also be aware that an addback should only improve an already positive servicing position (if this is not the case, you should discuss the circumstances with your Mortgage Broker to determine the merits of the application based on other mitigating factors).
In terms of ‘One Off’ expenses, these are items appearing in the business Profit and Loss statement that are not part of normal trade and you should provide evidence they are not reoccurring.
Use the Ready Reckoner (2nd $value OUTPUT field) to identify what amount is to be inserted into the Servicing Calculator.
Company Income (this is a Non Taxed field)
The amount input into this field must already have Tax deducted (Ready Reckoner must be completed). If not, you will need to deduct 30% from the income figure to reflect the correct figure.
Note: If any Applicant will be using Company income to demonstrate servicing of the proposed loan, it is assumed they will be drawing that amount as personal income in future Financial Years, so you can also insert this amount into Net Income 1 or 2 after you have deducted the correct amount of Tax, which would include the income they are already receiving.
Net Income 1 (this is a Non Taxed field)
Insert any Net income the customers will be receiving (e.g. Car Allowance). Evidence will be required to confirm the Non–Taxable figure.
Net Income 2 (this is a Non Taxed field)
As per Net Income 1.
Allowable Untaxed Income
Place cursor above red triangle for guidance notes.
Commitments
Loan Repayment
This is a calculated field and will pre-populate a figure based on the Loan Amount, Term and Servicing Rate.
Total Limits
These fields apply to the Other Mortgages, Credit Cards and Other Loan Commitments fields. It is important these are the limits, NOT the balances.
Other Mortgages
Insert the (annual) repayments on any other Home Loans, Investment Loans, Commercial Loans, and Business Loans etc other than the proposed loan.
Credit Cards
The total of ALL Credit Card limits should be inserted into this fields, regardless of whether they are cleared regularly OR what capacity they are utilised.
Other Loan Commitments
Insert the (annual) repayments on any other loans the applicants may have (e.g. Personal Loans, Hire Purchase, and Leases etc).
Note: Include ALL loans regardless of when they are due for full repayment (i.e. even during the next 12 months).
Rental Expenses
Should any applicant continue/propose to rent a property post settlement of this loan, the monthly rental amount is to be inserted. Where more than one applicant will be renting, provide a consolidated figure.
Calculations
LVR
This is a calculated field based on the Loan Amount and the Security Value.
Net Surplus
This is a calculated field based on the information input into the Servicing Calculator as per above.
Should the Servicing figure be considered appropriate (based on the information keyed into the Servicing Calculator), the amount will appear in a GREEN shaded box. If the figure is NOT acceptable, it will appear in a RED shaded box.
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