Glossary
Assessment rate
The higher interest rate a lender uses when testing whether you can afford the debt. Always above the rate you are actually offered.
In plain English
When a lender tests serviceability, it does not use the interest rate on the term sheet. It adds a buffer, commonly one to three percentage points, and tests the repayments at that higher figure. The result is called the assessment rate, and it exists so that a facility still services if rates rise after settlement.
This is the single most common reason borrowers overestimate their own capacity. An online calculator quotes repayments at the advertised rate; the credit team never does.
Why a lender cares
If your deal only works at the advertised rate, it does not work. Every model we build runs the repayments at a sensitised rate first, so the number you plan around is the number the bank will actually test.
Worked example
A $1,000,000 facility at 7% costs roughly $89,000 a year over 15 years. Tested at a 9% assessment rate, the same facility costs about $103,000. A business with $120,000 of surplus passes comfortably at one rate and scrapes through at the other.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nicholas gets you a straight read on your numbers, free.
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