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Prevent your mortgage from limiting your lifestyle

Tips for preventing your mortgage from limiting your lifestyle

The great Australian dream of owning a home can quickly turn into a nightmare if your new home sucks up your entire income, leaving little left over for a comfortable lifestyle.

For thousands of first home buyers, the nightmare is even more acute, with mortgage stress becoming an increasingly common problem. According to a study of 26,000 households conducted in 2012 by research company Digital Finance Analytics, 16 percent of first home buyers in Australia are under mortgage stress. 

Avoid over-extending your finances

The key to avoiding mortgage stress and maintaining your pre-mortgage lifestyle is to ensure you don’t over-extend yourself with a huge loan, said financial adviser Greg Pride of Centric Wealth. “Over-extending yourself is a surefire way to a pretty miserable existence,” he added.

Pride advises ensuring that no more than 30 percent of your take-home pay is assigned to the mortgage. “Above that, things start to compromise and you have to decide whether you want to miss out on your weekly night out or holidays,” he said.


If your monthly household income after tax is $10,000, your mortgage repayments should be no more than $3000 a month.

A good idea is to compare home loans and use online mortgage calculators to determine what the monthly repayments on various borrowing amounts would be before you talk to a lender.

Budget for interest rate rises

Deborah Kent, financial adviser with Integra Financial Services, agrees that the only way to prevent your mortgage from limiting your lifestyle is to avoid over-extending yourself. Her tip? Don’t be seduced by historically low interest rates to sign up for a big first mortgage – instead, calculate what your repayments would be at a higher rate, such as 8 percent, and choose the best mortgage accordingly.

“Work out if you can survive if the interest rate rises to 8 percent,” Kent said. “Preparation is very much the key to avoid running into financial problems later on, especially when interest rates are low and people are tempted to borrow more.”

“But ask yourself, ‘do I really need the $1 million house or can I spend $800,000 and upgrade later?”

However, no matter how much you borrow, you will have to adjust your lifestyle, Kent argued.

“You will have to make some sacrifices,” she said. “You may have to cut down from going out four times a week to twice a week. A good solution is to entertain at home – it’s a great way to catch up with people without spending a lot of money, and you get to show off your new home.”

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