I realise that banks have different Debt Serviceability ratios that they require and ways of calculating this, however, is there an on-line calculator or spreadsheet to work out your DSR or Debt to Income ratio..or a simple calculation used by most banks that an investor could use??
I’ve heard that your DSR should not exceed 35% of your gross and that “as a rule of thumb” your total debt should not exceed 4 x your Gross Income?
I think you need to know where you stand..at the moment our LVR is about 70% by my calculations (may be out) and was looking at working out the DSR..
Any thoughts?
Interesting site found whilst researching
REDWING“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorMy guess is :
annual loan (private and investment related) repayments (including P & I)
divided by
annual after tax income (wages + rent + dividends)
[biggrin]
Live, Learn and GrowLifexperience
I thought they allow a certain % of your PAYG Income , plus a % of any of your rental income; If that figure is greater than your loans annual repayments they are happy..
however, the banks may have different ratio requirements?
Any of the brokers able to assist here?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorRedwing,
I have always used the following calculation and, so far, no bank has told me that I am too lenient:
DSR = all loan repayments per month x 100
(Wages per month x 70%) + (rental income per month x 35%)the value then has to be < 35%.
hope that helps. You may already be using this…Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonThanks Calvin..looks great to me
I also had an e-mail from someone saying they allow 33% of PAYG income Plus 75% of all rental income.
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorBank calculators are rather complex, but some work it out similar to this:
Net Salary
Plus 80% rent
for income, and this must be greater than:
Outgoings – total debt payments (sometimes taken as if 8.25% PI loans)
plus, 3% credit card limit
plus any rent payable
plus a living allowance (more if couple, kids etc).Terryw
Discover Home Loans
Parramatta
[email protected]
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Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes All,
I’ve got the wrong percentages under the line!
Read Wages x 35% added to that Rent x 70%!Sorry
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonHere’s what i want to know:
I put a post out a lil while ago asking about whether or not you can include tax back on your IP interest in your DSR. The reply i got was that some lenders do consider it.
When they do, would that tax back be classified as earnings and hence multiplied by 35%, or is it Rental income and multiplied by 70%. (using Calvins@thirty’s formula – same one i use)).
There’s a huge difference between the 2 in where your serviceability will eventually hit a brick wall!!
Thoughts?
Cabo Wabo
Cabo
Neither.
Again there is no easy answer and varies from lender to lender.
In essence the negative gearing benefit is added as non taxable income to calculate service ability.
Assume that at your marginal rate of interest the tax credit is worth $100 / month.
The lender will calculate your net income and a percentage of the rent and then add back the negative gearing credit to calculate serviceability.
It varies considerably with lender to lender.
Cheers Richard
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
I’ve heard the same, that some lenders apply “add-Backs” and others dont..that’s why I prefer a Mortgage Broker to a Bank Manager..
More Options..
A Broker who is also an Investor is a *bonus*
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorRedwing,
It depends very much on your salary I believe.
This quaint old notion they used to have of 1/3rd for repayments, 1/3rd for living consumerables and 1/3rd for tax no longer cuts the mustard. With tax rates coming down over the past few years and wages rising, the last two components have been dropped somewhat.
My Banker allows me up to 70% of my salary as I don’t pay tax…and the living consumerables never gets above 11%…so there is still alot of fat in there for them to chew on.
In terms of rental percentages, they take
1. 70% on the drossy residential suburbs
2. 80% on the good area houses
3. 90% on my written leases to little industrial tenants
4. 100% of the nett rental figures for the larger national companies on long leases.This helps heaps for your borrowing capacity, and has driven our strategy of late to crank up and find further tenants in the 4th category.
It’s got to the point where the DSR ‘hit the wall’ limit has been removed and now the equity side of things is starting to become the limiting factor for further borrowing.
Looking forward very much to the figures coming out in a few weeks time showing what the property in the West has done.
Originally posted by Dazzling:
Looking forward very much to the figures coming out in a few weeks time showing what the property in the West has done.Dazzling,
Is that in The West Aust Paper?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorQlds007,
If they don’t reduce your tax back by 30% or 70%, but let it stand alone as 100% of its value, then thats better than i anticipated. Great….
Cabo Wabo
How about Depreciation as an add-back -imagine a house has $110,000 as the building cost (not land component which may be $110,000 also), 2.5% of that figure can be taken as a tax deduction, that is $2,750, every year for forty years?
Imagine the property had an income or rental of $250 per week then through the 2.5% building depreciation allowance, $2,750 or 21.15% of gross income, is TAX FREE..
Then look at other depreciable items, including those in the ‘low value pool’…imagine if the property is Fully Furnished or has white goods etc as part of the rental.
As well as loan costs for the first three years, loan interest costs, property expenses etc
Surely this must all assist your serviceability?
Then how about the benefit of completing the tax variation paerwork?
Sorry….thinking aloud here for my personal situation ;O)
Appreciate any feedback.
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculator
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