# What is serviceable income factor and how its use in calculation?

I want to borrow a loan.Loan for 25 years and 3.75% is interest rate.I have calculate a surplus amount but I can't understand Serviceable Income Factor and Interest Rate Buffer.

salary=4000; // permonth
TotalExpense=1725;
Fixed salary=0.80 * salary; //3200
Surplus= Fixed salary-TotalExpense // 3200-1725 = 1475-40=1435

Now I want to know that how serviceable income factor is work?How whould I know how much I can borrow?

Reference link :http://www.homeloans.com.au/calculators/much-can-borrow/

• You are using a loan calculator of Australia and you are resident in India? – Dheer Oct 10 '17 at 11:42
• I want to calculate for AU – Vasim Shaikh Oct 10 '17 at 11:45
• why surplus and EMI is diffrent? – Vasim Shaikh Oct 10 '17 at 11:52

## 1 Answer

Serviceable income factor is a percentage of total income you want to consider for loan. There could be some income you don't want to consider.

Interest rate buffer is the factor for interest rate change. This gives a safety window; I.e. you plan to buy a house and pay token amount, realize interest rates have gone up and suddenly you are not eligible for the required loan amount, but a lesser amount.

Surplus and EMI are different. It is an incorrect assumption that bank will grant a loan to the extent surplus is EMI.... There are multiple factors, including your housing EMI should not be more than 30-40% of net income... Again different banks have slightly different policy

• Let assume that,Salary is 4000 Monthly and Expense is 1725 per month.I want to get a loan.So how would I calculate capacity ? – Vasim Shaikh Oct 16 '17 at 6:46
• @VasimVanzara The calculator has given you the amount. Generally your capacity is 30% of [4000-Taxes-OtherEMI. ] This is the EMI you can afford and the tenor decides the total amount. Of course there are other parameters that are considered by Bank. – Dheer Oct 17 '17 at 11:15
• Ok will look into – Vasim Shaikh Oct 17 '17 at 11:36