Mortgage Affordability (Income-based)
Determine the maximum home loan you can comfortably afford based on your income, expenses, and current interest rates, empowering you to house hunt with confidence.
Quick Use Samples
Your Financial Details
Your Borrowing Power
You could afford a property worth
$360,107
Monthly Income vs. Expenses & Loan
With a combined annual income of $150,000, you could potentially borrow up to $260,107. Combined with your deposit, you could afford a property valued at around $360,107. Your estimated monthly repayment for this loan would be $1,477.
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What is Mortgage Affordability?
Mortgage affordability is an assessment of how much you can realistically afford to borrow for a home loan based on your income, expenses, and deposit size. It's a crucial first step in the home-buying journey, as it determines your property-buying budget and prevents you from taking on a mortgage that could cause financial stress.
Behind the Formula
The calculator estimates your borrowing power using methods similar to Australian banks. It considers your gross income, subtracts your estimated living expenses (using a benchmark like the Household Expenditure Measure or your own figures), and accounts for existing debts. It then stress-tests this remaining income against a higher 'buffer' interest rate to determine a maximum loan amount you can service.
Expert Insights
- Your borrowing power is not the same as what you should borrow. Banks will often lend you the maximum they think you can repay, but this might leave you with very little room for other financial goals or unexpected life events.
- Since 2021, Australian banks are required by the regulator (APRA) to apply an interest rate buffer of at least 3% above the loan's interest rate when assessing your application. This is to ensure you can still afford repayments if rates rise.
- Your credit card limits have a big impact. A lender will assess 3% of your total credit card limit as a monthly expense, even if you pay off the balance each month. Reducing your credit limits before applying for a mortgage can increase your borrowing power.
Actionable Tips
- Before you start looking at properties, use this calculator to get a realistic idea of your budget. This will help you focus your search and avoid disappointment.
- Reduce your existing debts and credit card limits in the 6 months before applying for a home loan. This will improve your debt-to-income ratio and increase your borrowing capacity.
- Save as large a deposit as you can. A deposit of 20% or more allows you to avoid paying Lenders' Mortgage Insurance (LMI), which can save you thousands of dollars.
Real-World Examples
A First Home Buyer Couple
A couple with a combined income of $150,000, minimal expenses, and no other debts might have a borrowing capacity of around $700,000, allowing them to purchase a property worth around $850,000 with their deposit.
The Impact of a Car Loan
Someone with a $600 monthly car loan payment might see their borrowing power reduced by as much as $100,000 compared to if they had no car loan, as that money is already committed to another debt.
A Single Buyer on a Moderate Income
A single person earning $85,000 a year might find their borrowing capacity is around $400,000. This helps them set realistic expectations about the type and location of property they can afford.
Glossary of Terms
Borrowing Power
The maximum amount of money a lender is willing to lend you for a home loan, based on their assessment of your financial situation.
Lenders' Mortgage Insurance (LMI)
Insurance that a lender takes out to protect itself against the risk that you default on your loan. It is usually payable by the borrower if their deposit is less than 20%.
Serviceability
A lender's assessment of your ability to meet your loan repayments based on your income and expenses.