How to budget for a home loan with a repayment calculator

Most Australians dream of owning a home. Even if this dream may seem out of reach, that doesn’t mean you shouldn’t start saving and researching how to reach your homeowner goal.

There are many tools available online to help you plan and realise your home loan dreams, including home loan repayment calculators.

There are two main ways to use a home loan calculator:

• One is to enter some details of the home loan, such as the loan size, interest rate, and term length, and it will calculate how much the repayments could cost you.
• The other is to enter how much you’d like to make in regular home loan repayments, and the calculator will help you work out how much money you may be able to borrow, which will also be affected by the loan term and interest rate.  

These calculations can help you work out the kind of mortgage you can afford, and from that, what type of property you may be able to afford to purchase.

Once you’ve calculated the cost of home loan repayments, it’s important to compare this figure to your household’s income and expenses to estimate if you could comfortably afford to pay them. If more than one third of your household income would go towards servicing a home loan, your lender may consider you to be at risk of financial stress and may be less likely to approve your home loan application as a result.

You could also use a home loan calculator that takes your income and expenses into account to not only work out how much you could potentially borrow, but how large a loan a bank or mortgage lender may approve you for. This could be valuable when setting your household budget to prepare for a home loan.

The size of your deposit will also make a big difference to your home loan budget. A deposit of 20% or more of a property’s value may allow you to qualify for a greater variety of home loan options. However, due to the high property prices in many popular locations around Australia, saving this money up may require a dedicated saving plan and a lot of time. A smaller deposit may allow you to get onto the property market sooner, but you may need to budget for the cost of Lenders Mortgage Insurance (LMI) – the smaller the deposit, the more you may pay in LMI. Alternatively, you may be able to get support from a guarantor.

Once you’ve calculated your home loan budget, you can start comparing home loans to find the offer that may best suit your household finances. A mortgage broker may be able to provide more specific personal advice to help you in your search.

When you’re ready, you can contact the lender to apply for home loan pre-approval. This is where the lender agrees in principle to lend you the money to buy a property, provided the valuation of the property being purchased shows that there will be an acceptable Loan to Value Ratio (LVR). A preapproval gives you a budget for going house shopping, allowing you to confidently make offers, whether privately or at auction.

If your offer is successful, the lender will organise a valuation of the property to make sure it satisfies their requirements. If everything checks out, you can start putting your planned budget into action as a homeowner.

Compare home loans in Australia