Australian Lending Policy Reference

Existing Debts

Existing debts are assessed conservatively in mortgage serviceability — typically at stressed rates above their actual cost, and for credit cards, on the total limit rather than the current balance.

Vetted and updated: 2026ACL 387460 Vetted

Core Assessment Analysis

How Lenders Assess Existing Debts

All existing debts are deducted from assessed income in the serviceability calculation, before the repayment on the proposed new loan is added. The key feature: existing debts are assessed more conservatively than their actual cost, which means the servicing impact is higher than the borrower's actual monthly payments.

Existing mortgage repayments — stress testing

Existing home loan and investment loan repayments are typically assessed at approximately 3% above their actual contracted rate in the serviceability calculation. This reflects the APRA requirement to stress-test repayment capacity against potential rate increases.

A borrower paying $2,800 per month on an existing investment property loan at 6.5% may have that loan assessed at $3,400 per month in the serviceability calculation (at the stressed rate). For borrowers with multiple investment properties, this multiplied effect can significantly compress borrowing capacity for new lending — even where actual repayments are comfortably managed.

Credit card limits — the total limit rule

Credit cards are assessed based on the total credit limit, not the current balance or the minimum monthly repayment. Most lenders apply approximately 3–3.8% of the total credit card limit per month as a standing monthly obligation.

Practical example: A borrower with $20,000 in combined credit limits carries an assessed obligation of $600–$760 per month in the serviceability calculation, regardless of whether the cards are ever used or carry a balance.

Closing unused credit cards or reducing limits before application can materially improve borrowing capacity, depending on total exposure.

HECS/HELP obligations

HECS and HELP debts are treated as a compulsory ATO deduction from gross income — applied at the relevant repayment threshold rate (currently ranging from 1–10% of gross income depending on income level). This deduction is applied before net income is calculated, reducing the income base that enters the serviceability calculation.

HECS is not a separate monthly payment visible on bank statements — it is deducted via the tax system — but it is nonetheless included in the assessment as a reduction to available income.

BNPL (buy now, pay later)

Buy now, pay later facilities such as Afterpay, Zip, and similar services may be visible in bank statements during the expense verification review. Some lenders treat active BNPL usage as an ongoing liability; others treat it as a spending pattern indicator. The presence of multiple active BNPL facilities can affect assessment even where each individual facility is small.

Novated leases

Novated lease repayments are typically deducted from salary before take-home pay, which means they reduce the gross income used in the assessment. Some lenders gross them back up; others do not. Treatment varies by lender.

Personal loans and other consumer debt

Personal loan repayments are assessed at the actual contracted repayment schedule, not stressed. They are included in full as a monthly committed obligation.

Guarantees and contingent liabilities

Where a borrower has guaranteed another party's debt (a business loan, an adult child's home loan), the guaranteed amount may be assessed as a contingent liability and reduce available capacity. Treatment depends on the size of the guaranteed facility, the performance of the underlying debt, and lender policy.

Pages in this cluster

Related clusters

Living Costs — for HEM and expense benchmarks
Borrowing Capacity — for how debts interact with total capacity

Why Underwriters Focus Here

APRA requires lenders to stress-test all existing loan repayments at a rate above the actual contracted rate because rate increases affect all existing loans simultaneously — not just the new one. A borrower with multiple investment properties who is managing comfortably at current rates may not be able to manage if rates rise by 2–3%. The stress-testing framework builds that resilience assessment into every new approval.

Key Outcome Assessment Factors

Total credit card limits (the primary driver in many cases), number and size of existing investment loans, HECS balance and income level (which determines the repayment rate), whether any novated leases are in place, and whether there are any guarantees on third-party facilities. Borrowers who reduce credit card limits and close unused cards before application often see a meaningful improvement in assessed borrowing capacity.

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General Information Only

General educational information only. Debt servicing policies vary between lenders. This content does not constitute credit advice. Model Mortgages Pty Ltd | ACL 387460.

Model Mortgages Pty Ltd | Australian Credit Licence 387460