Credit assessment, income verification and servicing calculations
Domain 5 - Credit assessment, income verification and servicing calculations
This domain tests whether the borrower can service the loan from verified, sustainable income after realistic commitments.
Core rules
- Verify PAYE income with payslips, bank statements and, where needed, an IRD income summary; check frequency and net amount.
- Self-employed income requires financial statements, tax returns or IRD summary and add-backs for non-recurring items; use a conservative average.
- Rental income is usually adjusted for vacancy and costs, often 70–80% of gross rent, not counted at 100%.
- Serviceability = verified net income − living expenses − existing commitments − proposed repayments, tested at an assessment rate.
- Include credit card limits, overdrafts, buy-now-pay-later facilities and contingent liabilities.
Worked example
A borrower earns $95,000 PAYE, net $6,200 monthly, plus gross rent $500 per week. The lender uses 75% of rent = $375 per week, or about $1,625 per month, less rates and insurance of $250, so the net rental contribution is $1,375. Total assessable income = $7,575. Living expenses $2,800, existing car loan $450, proposed repayment at assessment rate $2,900: surplus = $1,425. If overtime of $500 per month is not guaranteed, exclude it and document why.
Traps
- Using gross salary instead of net pay.
- Counting all rent without vacancy or cost adjustments.
- Ignoring credit card limits because the balance is zero.
- Accepting self-employed add-backs that are not sustainable.
- Failing to test at a higher assessment rate.