What Is a Bank Test Rate – And Why Should You Care?

If you've applied for a mortgage recently and been told you don't qualify, even though the repayments seem affordable, the culprit might not be your income. It could be something called the bank test rate. So, what is it, and why does it matter?

What Is a Bank Test Rate?

Also known as a servicing or stress test rate, a bank test rate is the hypothetical interest rate banks use to assess your ability to repay a loan. It’s not the rate you’ll actually be paying, it’s the rate the bank pretends you’ll pay, just in case interest rates go up in the future. Right now, even if your actual interest rate is around 6%, most NZ banks are testing your application as if you’re paying around 8% or more. Yes, even if you’ve secured a much lower rate. This is their way of making sure you could still afford the loan if interest rates rise unexpectedly. It's part of responsible lending, protecting both the bank and you from overextending financially.

Why It Matters

The test rate affects how much you can borrow. Even if your actual repayments are well within your budget, a high testing rate could reduce your borrowing power, or even result in a declined application. So if you've been turned down for finance, or approved for much less than you expected, it may not be about your income or spending at all, it might simply be that the bank’s stress-testing model is conservative.

How Can You Work Around It?

Here are a few things that can help improve your chances of passing the test rate:

• Reduce your debt: Clear any credit cards or personal loans to free up income.
• Cut unnecessary spending: Banks often look at your last 3 months of statements.
• Consider a co-borrower: Adding a second income could improve your servicing ability.
• Shop around: Some lenders have slightly lower test rates or more flexible criteria.
• Work with a mortgage broker: They’ll know which banks are more likely to approve your application based on your specific situation.

Don’t Let the Test Rate Stop You

If you're feeling discouraged, don’t be. Getting declined for a loan doesn’t always mean you can’t afford a property, it might just mean the bank’s model is working with worst-case assumptions. And with the right support and advice, there are often other paths forward.

Let’s Make a Plan

At SM Property, we work closely with trusted mortgage advisers who can help you understand your borrowing potential - and find a lender that fits your situation. Whether you’re a first home buyer or planning to invest, we’ll help you get clarity and confidence in your next move. Need help figuring it out? Contact us today, and we’ll walk you through it.