Mortgage Affordability

Are you thinking of buying a home for the first time and taking on your first mortgage? Before you take on debt you’ll need to estimate mortgage affordability by calculating a home loan amount that you can afford based on repayments. The same is true for those looking to refinance and take on more debt.

A good way to calculate how much you can comfortably afford to borrow is to use an online budget planner. If you have to allocate more than 30 percent of your household income to repay a mortgage then you may face mortgage stress and should consider reducing the home loan amount.

To get an idea of the cost to service a mortgage, visit our home loans page where you can compare home loans and gauge repayment size. It’s only a guide but will help you determine mortgage affordability and whether you should borrower a smaller amount to live more comfortably.

For instance, a $250,000 home loan may require a minimum monthly repayment from around $1,700 depending on the lender and cash rate. Could you afford to repay this amount each month as well as other living expenses? The answer will determine a mortgage’s affordability.

When determining mortgage affordability, it’s important to take into consideration potential rate movements. We’d recommend allowing for a 2 percent rate increase when designing your budget.

How to find the best loan

During the global financial crisis, mortgage affordability became a newsworthy issue and a growing concern for many Australians. But in 2011 research revealed that post-GFC, mortgage affordability is improving as house prices remain steady compared to five years earlier and incomes continue to increase, on average.

The research revealed that Australians faced a better prospect of saving for a first home in 2011 compared to five and especially two years earlier.

But these figures are averages – some Australians are still doing it tough. Every person’s financial situation is unique, so to determine your ability to service a home loan you’ll need to crunch the numbers for yourself or speak to a financial planner. You’ll almost always benefit from comparing home loans online before signing up to one also, to ensure you’re getting the best interest rate and features and lowest fees on a loan to suit your needs.